ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 30, 2005

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File No. 1-13881

MARRIOTT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

52-2055918

(State of Incorporation)

(IRS Employer Identification No.)

10400 Fernwood Road, Bethesda, Maryland

20817

(Address of Principal Executive Offices)

(Zip Code)

Registrants
Telephone Number, Including Area Code (301) 380-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value

(205,352,719 shares outstanding as of February 10, 2006)

New York Stock Exchange

Chicago Stock Exchange

Pacific Stock Exchange

Philadelphia Stock Exchange

Securities
registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule
405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate
by check mark if disclosure by delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Throughout this report, we refer to Marriott International, Inc., together with its subsidiaries, as
we, us, or the Company. Unless otherwise specified, each reference to 2005 means our fiscal year ended December 30, 2005, each reference to 2004 means our fiscal year ended
December 31, 2004, each reference to 2003 means our fiscal year ended January 2, 2004, and each reference to 2002 means our fiscal year ended January 3, 2003, and not, in each case, the corresponding calendar
year.

PART I

Item 1. Business.

We are a
worldwide operator and franchisor of hotels and related lodging facilities. Our operations are grouped into the following five business segments:

Segment

Percentage of 2005 TotalSales

Full-Service Lodging

65%

Select-Service Lodging

11%

Extended-Stay Lodging

5%

Timeshare

15%

Synthetic Fuel

4%

We were organized as a
corporation in Delaware in 1997 and became a public company in 1998 when we were spun off as a separate entity by the company formerly named Marriott International, Inc.

In our Lodging business, which includes our Full-Service, Select-Service,
Extended-Stay and Timeshare segments, we develop, operate and franchise hotels and corporate housing properties under 13 separate brand names, and we develop, operate and market timeshare, fractional ownership and whole ownership properties under
four separate brand names. We also provide services to home/condominium owner associations.

Our synthetic fuel operation consists of our interest in four coal-based synthetic fuel production facilities whose operations qualify for tax credits based on Section 29 of the Internal Revenue Code
(Section 29) (redesignated as Section 45K for fiscal years 2006 and 2007).

Financial information by industry segment and geographic area as of and for the 2005, 2004, and 2003 fiscal years then ended appears in Footnote 19, Business Segments of the Notes to our Consolidated
Financial Statements included in this annual report.

Lodging

We operate or franchise 2,741 lodging properties
worldwide, with 499,165 rooms as of year-end 2005. In addition, we provide 1,850 furnished corporate housing rental units. We believe that our portfolio of lodging brands is the broadest of any company in the world, and that we are the leader in the
quality tier of the vacation timesharing business. Consistent with our focus on management and franchising, we own very few of our lodging properties. Our lodging brands include:

Terms of our management agreements vary, but typically we earn a management fee, which comprises a base fee, which is a percentage of the revenues of the
hotel, and an incentive management fee, which is based on the profits of the hotel. Our management agreements also typically include reimbursement of costs (both direct and indirect) of operations. Such agreements are generally for initial periods
of 20 to 30 years, with options to renew for up to 50 additional years. Our lease agreements also vary, but typically include fixed annual rentals plus additional rentals based on a percentage of annual revenues in excess of a fixed amount. Many of
the Operating Agreements are subordinated to mortgages or other liens securing indebtedness of the owners. Additionally, most of the Operating Agreements permit the owners to terminate the agreement if financial returns fail to meet defined levels
for a period of time and we have not cured such deficiencies.

For lodging facilities that we operate, we are responsible for hiring, training and supervising the managers and employees required to operate the facilities and for purchasing supplies, for which we generally are reimbursed by the owners.
We provide centralized reservation services and national advertising, marketing and promotional services, as well as various accounting and data processing services.

We have franchising programs that permit the use of certain of our brand
names and our lodging systems by other hotel owners and operators. Under these programs, we generally receive an initial application fee and continuing royalty fees, which typically range from 4 percent to 6 percent of room revenues for all brands,
plus 2 percent to 3 percent of food and beverage revenues for certain full-service hotels. In addition, franchisees contribute to our national marketing and advertising programs, and pay fees for use of our centralized reservation systems. At
year-end 2005, we had 1,707 franchised properties (232,048 rooms).

Seasonality

In general, business at
company-operated and franchised properties is relatively stable and includes only moderate seasonal fluctuations. Business at some resort properties may be seasonal depending on location.

Relationship with Major Customer

We operate a number of properties, under long-term management agreements, that are owned or leased by Host Marriott Corporation (Host
Marriott). In addition, Host Marriott is a partner in several partnerships that own properties operated by us under long-term management agreements. See Footnote 22, Relationship with Major Customer in the Notes to our Consolidated
Financial Statements included in this annual report for more information.

At year-end 2005, we operated or franchised the following properties by
brand (excluding 1,850 corporate housing rental units):

Company-Operated

Franchised

Brand

Properties

Rooms

Properties

Rooms

Full-Service Lodging

Marriott Hotels & Resorts

269

107,531

190

57,116

Marriott Conference Centers

14

3,606





JW Marriott Hotels & Resorts

29

13,937

5

1,265

The Ritz-Carlton

59

19,285





Renaissance Hotels & Resorts

90

33,449

47

14,783

Bulgari Hotel & Resort

1

58





Ramada International

3

532





Select-Service Lodging

Courtyard

306

49,130

386

50,539

Fairfield Inn

2

855

522

47,144

SpringHill Suites

24

3,815

113

12,187

Extended-Stay Lodging

Residence Inn

135

18,172

355

40,272

TownePlace Suites

34

3,660

88

8,643

Marriott Executive Apartments

16

2,753

1

99

Timeshare1

Marriott Vacation Club International

44

9,401





The Ritz-Carlton Club

4

292





Grand Residences by Marriott

2

313





Horizons by Marriott Vacation Club

2

328





Total

1,034

267,117

1,707

232,048

1

Includes products in active sales which are not ready for occupancy.

We currently have more than 70,000 rooms in our
development pipeline and expect to add approximately 25,000 hotel rooms and timeshare units to our system in 2006. We believe that we have access to sufficient financial resources to finance our growth, as well as to support our ongoing operations
and meet debt service and other cash requirements. Nonetheless, our ability to sell properties that we develop, and the ability of hotel developers to build or acquire new Marriott properties, important parts of our growth plan, are partially
dependent on their access to and the availability and cost of capital. See the Liquidity and Capital Resources section in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations.

JW Marriott Hotels & Resorts is the Marriott brands luxury collection of distinctive properties and resorts that cater to
accomplished, discerning travelers seeking an elegant environment and personal service. These 34 properties (15,202 rooms) are primarily located in gateway cities and upscale locations throughout the world. In addition to the features found in a
typical Marriott full-service property, the facilities and amenities at JW Marriott Hotels & Resorts properties normally include larger guest rooms, higher end décor and furnishings, upgraded in-room amenities, upgraded business
centers and fitness centers/spas, and 24-hour room service.

We
operate 14 Marriott Conference Centers (3,606 rooms) throughout the United States. Some of the centers are used exclusively by employees of sponsoring organizations, while others are marketed to outside meeting groups and individuals. In
addition to the features found in a typical Marriott full-service property, the centers typically include expanded meeting room space, banquet and dining facilities, guest rooms and recreational facilities.

The
Ritz-Carlton is a leading global luxury lifestyle brand of hotels and resorts renowned for their distinctive architecture and for the high quality level of their facilities, dining options and exceptional personalized guest service. Most
Ritz-Carlton hotels have 250 to 400 guest rooms and typically include meeting and banquet facilities, a variety of restaurants and lounges, a club level, gift shops, high-speed internet access, swimming pools and parking facilities. Guests at most
of the Ritz-Carlton resorts have access to additional recreational amenities, such as tennis courts, golf courses and health spas.

The Ritz-Carlton

Geographic Distribution at
year-end 2005

Hotels

United States (14 states and the District of Columbia)

35

(11,616 rooms)

Non-U.S. (20 countries and territories)

Americas (Non-U.S.)

7

Continental Europe

5

Asia

8

The Middle East and Africa

4

Total Non-U.S.

24

(7,669 rooms)

Renaissance
Hotels & Resorts is a distinctive and global quality-tier full-service brand that targets individual business and leisure travelers and group meetings seeking stylish and personalized environments. Renaissance Hotels & Resorts
properties are generally located at downtown locations in major cities, in suburban office parks, near major gateway airports and in destination resorts. Most properties contain from 300 to 500 rooms; however, a few of the convention oriented
properties are larger, and some properties in non-gateway markets, particularly in Europe, are smaller. Renaissance properties and services typically feature distinctive décor, in-room high-speed internet access, restaurants and lounges, room
service, swimming pools, gift shops, concierge lounges, and meeting and banquet facilities. During 2005, most properties installed a new bedding package offering plusher mattresses and enhanced bedding components, including down comforters, duvets
and cotton-rich linens. Resort properties typically have additional recreational and entertainment facilities and services, including golf courses, tennis courts, water sports, additional restaurants and spa facilities.

Renaissance Hotels & Resorts

Geographic
Distribution at year-end 2005

Hotels

United States (26 states and the District of Columbia)

67

(25,431 rooms)

Non-U.S. (28 countries and territories)

Americas (Non-U.S.)

8

Continental Europe

28

United Kingdom

7

Asia

23

The Middle East and Africa

4

Total Non-U.S.

70

(22,801 rooms)

Bulgari
Hotels & Resorts. As part of our ongoing strategy to expand our reach through partnerships with pre-eminent world-class companies, in early 2001 we entered into a joint venture with jeweler and luxury goods designer Bulgari SpA to
create and introduce distinctive new luxury hotel properties in prime locations  Bulgari Hotels & Resorts. The first property (58 rooms), the Bulgari Hotel Milano, opened in Milan, Italy, in 2004. The second property, the Bulgari
Resort Bali, is expected to open in Spring 2006 and will include 59 private villas, two restaurants and comprehensive spa facilities. Other projects are currently in various stages of development in Europe, Asia, and North America.

Ramada International. We sold Ramada International, a moderately-priced and predominantly
franchised brand targeted at business and leisure travelers outside the United States, to Cendant Corporation (Cendant) during the fourth quarter of 2004. We continue to manage three Ramada International properties (532 rooms) located
outside of the United States at year-end 2005. Additionally, in the second quarter of 2004, Cendant exercised its option to redeem our interest in the Two Flags joint venture, and as a result, Cendant acquired the trademarks and licenses for the
Ramada and Days Inn lodging brands in the United States. The Two Flags joint venture was originally formed in 2002 by us and Cendant to further develop and expand the Ramada and Days Inn brands in the United States. We contributed the domestic
Ramada license agreements and related intellectual property to the joint venture, and Cendant contributed the Days Inn license agreement and related intellectual property.

Select-Service Lodging

Courtyard is our upper-moderate-price select-service hotel product aimed primarily at transient business travel. Courtyard hotels maintain a
residential atmosphere and typically contain 90 to 150 rooms in suburban locales, and 140 to 340 rooms in downtown/urban locales. Well-landscaped grounds typically include a courtyard with a pool and social areas. Hotels feature functionally
designed quality guest rooms and meeting rooms, free in-room high-speed internet access (in North America), limited restaurant facilities, a swimming pool and an exercise room. During 2005, most properties installed a new bedding package offering
plusher mattresses and enhanced bedding components, including cotton-rich linens, and most hotels include The Market, a self-serve food store open 24 hours a day. Through year-end 2005, 129 hotels have been reinvented, and reinventions of an
additional 43 properties are expected to be completed by year-end 2006. Reinvented properties feature fresh, crisp designs for guest rooms, lobbies and public spaces, granite bathroom vanities, and new guest room furnishings with rich, new fabrics
and colors. The operating systems developed for these hotels allow Courtyard to be price-competitive while providing better value through superior facilities and guest service. At year-end 2005, there were 692 Courtyards operating in 24 countries.

Courtyard

Geographic Distribution at
year-end 2005

Hotels

United States (47 states and the District of Columbia)

623

(87,539 rooms)

Non-U.S. (23 countries and territories)

Americas (Non-U.S.)

20

Continental Europe

27

United Kingdom

12

Asia

5

The Middle East and Africa

2

Australia

3

Total Non-U.S.

69

(12,130 rooms)

Fairfield Inn
is our hotel brand that competes in the lower-moderate-price tier. Aimed at value-conscious individual business and leisure travelers, a typical Fairfield Inn or Fairfield Inn & Suites has 60 to 140 rooms and offers free in-room high-speed
internet access, a swimming pool, complimentary continental breakfast and free local phone calls. During 2005, most properties installed a new bedding package featuring plusher mattresses and enhanced bedding components, including cotton-rich
linens. At year-end 2005, there were 388 Fairfield Inns and 136 Fairfield Inn & Suites (524 hotels total), operating in the United States, Canada and Mexico.

Fairfield Inn

Geographic Distribution at
year-end 2005

Hotels

United States (48 states)

519

(47,440 rooms)

Non-U.S. (2 countries)

Americas (Non-U.S.)

5

(559 rooms)

SpringHill
Suites is our all-suite brand in the upper-moderate-price tier targeting business travelers, leisure travelers and families. SpringHill Suites typically have 90 to 165 studio suites that are 25 percent larger than a typical hotel guest
room. The brand offers a broad range of amenities, including free in-room high-speed internet access, The Market, a self-serve food store open 24 hours a day, complimentary Suite Seasons hot breakfast buffet and
exercise facilities. During 2005, most properties installed a new bedding package featuring plusher mattresses and enhanced bedding components, including cotton-rich linens. There were 137 properties (16,002 rooms) located in the United States,
Canada and Mexico at year-end 2005.

Residence Inn, North Americas leading extended-stay brand, allows guests on long-term trips to
experience all the comforts of home while traveling. Spacious suites with full kitchens and separate areas for sleeping, working, relaxing and eating offer home-like comfort with functionality. During 2005, most properties installed a new bedding
package featuring plusher mattresses and enhanced bedding components, including cotton-rich linens. A friendly staff and welcome services like complimentary hot breakfast and evening social hours add to the sense of community. There are 490
Residence Inn hotels across North America. Through year-end 2005, 95 Residence Inns have been refreshed and feature modern residential touches including a work station/breakfast bar separating the kitchen from the living room, brighter color schemes
and updated kitchens and bathrooms. An additional 24 properties are scheduled to be refreshed in 2006.

Residence Inn

Geographic Distribution at
year-end 2005

Hotels

United States (47 states and the District of Columbia)

473

(56,204 rooms)

Non-U.S. (2 countries)

Americas (Non-U.S.)

17

(2,240 rooms)

TownePlace Suites
is a moderately priced extended-stay hotel product that is designed to appeal to business and leisure travelers who stay for five nights or more. The typical TownePlace Suites hotel contains 100 studio, one-bedroom and two-bedroom suites. Each
suite has a fully equipped kitchen and separate living area with a comfortable, residential feel. Each hotel provides housekeeping services and has on-site exercise facilities, an outdoor pool, 24-hour staffing, free in-room high-speed internet
access and laundry facilities. During 2005, most properties installed a new bedding package featuring plusher mattresses and enhanced bedding components, including cotton-rich linens. At year-end 2005, 122 TownePlace Suites (12,303 rooms) were
located in 36 states.

Marriott ExecuStay provides
furnished corporate apartments for stays of one month or longer nationwide. ExecuStay owns no residential real estate and provides units primarily through short-term lease agreements with apartment owners and managers and franchise agreements. The
total number of units leased at year-end 2005, directly by Marriott ExecuStay was approximately 2,000 and more than 3,000 were leased by our 14 franchisees. At year-end 2005, Marriott ExecuStay managed seven markets and had franchise relationships
in 38 more, brining the total market count to 45.

Marriott
Executive Apartments. We provide temporary housing (Serviced Apartments) for business executives and others who need quality accommodations outside their home country, usually for 30 or more days. Some Serviced Apartments operate
under the Marriott Executive Apartments brand, which is designed specifically for the long-term international traveler. At year-end 2005, four Serviced Apartments properties and 13 Marriott Executive Apartments (2,852 rooms total) were
located in 10 countries and territories. All Marriott Executive Apartments are located outside the United States.

Timeshare

We develop, operate, and market timeshare, fractional, and whole ownership properties under four brand names. Many timesharing resorts are located
adjacent to Marriott-operated hotels, and timeshare owners have access to certain hotel facilities during their vacation. Owners can trade their annual interval for intervals at other Marriott timesharing resorts or for intervals at certain
timesharing resorts not otherwise sponsored by Marriott through a third-party exchange company. Owners can also trade their unused interval for points in the Marriott Rewards frequent stay program, enabling them to stay at over 2,600 Marriott hotels
worldwide. Our Timeshare segment operates under the following four brands:

The Marriott Vacation Club International (MVCI) brand offers full-service villas featuring living and dining areas, one-, two- and three-bedroom options, full kitchen and washer/dryer. Customers may
purchase a one week interval or more at each resort. In over 40 locations worldwide, this brand draws United States and international customers who vacation regularly with a focus on family, relaxation and recreational activities. In the United
States, MVCI is located in Las Vegas, Nevada; in beach and/or golf communities in Arizona, California, the Carolinas, Florida and Hawaii, and in ski resorts in California, Colorado and Utah. Internationally, MVCI has resorts in Aruba, France, Spain,
St. Thomas, U.S. Virgin Islands and Thailand.

The Ritz-Carlton Club brand is a luxury-tier real estate fractional ownership and personal residence ownership brand that combines the benefits of second home ownership with personalized services and amenities. This brand is designed
as a private club whose members have access to all Ritz-Carlton Clubs. This brand is offered in ski, golf and beach destinations in Colorado, St. Thomas, U.S. Virgin Islands, and Florida. Customers typically purchase three to five week intervals,
but may also purchase a residence outright.

Grand Residences by Marriott is an upper-quality-tier fractional ownership and
personal residence ownership brand for corporate and leisure customers. This brand is currently offering ownership in projects located in Lake Tahoe, California, and London, England. Customers typically purchase three to 13 week intervals.

Horizons by Marriott Vacation Club is
Marriott Vacation Clubs moderately priced timeshare brand whose product offerings and customer base are currently focused on facilitating family vacations in entertainment communities. Horizons resorts are located in Orlando, Florida, and
Branson, Missouri. Customers may purchase a one week interval or more at each resort.

We expect that our future timeshare growth will increasingly reflect opportunities presented by partnerships, joint ventures, and other business structures. We also anticipate that whole ownership products, especially
of the luxury Ritz-Carlton Club brand, will be the fastest growth opportunity within the Timeshare segment. In 2005, we initiated timeshare interval sales at Marriott Vacation Club Internationals Frenchmans Cove in St. Thomas, U.S.
Virgin Islands, which is expected to open in late 2006. In addition, the following resorts opened for operations in 2005 under the Marriott Vacation Club International brand: Surf Watch in Hilton Head, South Carolina and Las Vegas Chateau in Las
Vegas, Nevada.

Marriott Vacation Club Internationals
owner base continues to expand, with approximately 323,000 owners at year-end 2005, compared to approximately 283,600 at year-end 2004.

Timeshare (all brands)

Geographic
Distribution at year-end 2005

Resorts

Units

Continental United States

38

7,413

Hawaii

4

1,059

Caribbean

4

833

Europe

5

885

Asia

1

144

Total

52

10,334

Other Activities

Marriott Golf manages 28 golf course facilities as part of our management of
hotels and for other golf course owners.

We operate 17
systemwide hotel reservation centers, 11 in the United States and Canada and six in other countries and territories, that handle reservation requests for Marriott lodging brands worldwide, including franchised properties. We own one of the U.S.
facilities and lease the others. Additionally, we focus on increasing value for the consumer and selling the way the customer wants to buy. Our Look No Further Best Rate Guarantee, which gives customers access to the same rates
whether they book through our telephone reservation system, our web site or any other reservation channel; our strong Marriott Rewards loyalty program; and our information-rich and easy to use Marriott.com web site all encourage customers to make
reservations using the Marriott web site. We have complete control over our inventory and pricing and utilize online and offline agents on an as-needed basis. With over 2,700 hotels, economies of scale enable us to minimize costs per occupied room,
drive profits for our owners and maximize our fee revenue.

Our Architecture and Construction (A&C) division provides design, development, construction, refurbishment and procurement services to owners and franchisees of lodging properties on a voluntary basis outside the
scope of and separate from their management or franchise contracts. Consistent with third-party contractors, A&C provides these services for owners and franchisees of Marriott-branded properties on a fee basis.

Competition

We encounter strong competition both as a lodging operator and as a
franchisor. We believe that by operating a number of hotels among our brands, we stay in direct touch with customers and react to changes in the marketplace more quickly than chains that rely exclusively on franchising. There are approximately 615
lodging management companies in the United States, including several that operate more than 100 properties. These operators are primarily private management firms, but also include several large national chains that own and operate their own hotels
and also franchise their brands. Our management contracts are typically long-term in nature, but most allow the hotel owner to replace the management firm if certain financial or performance criteria are not met.

Affiliation with a national or regional brand is prevalent in the U.S. lodging industry. In 2005,
approximately two-thirds of U.S. hotel rooms were brand-affiliated. Most of the branded properties are franchises, under which the operator pays the franchisor a fee for use of its hotel name and reservation system. The franchising business is
fairly concentrated, with the five largest franchisors operating multiple brands accounting for a significant proportion of all U.S. rooms.

Outside the United States, branding is much less prevalent, and most markets are served primarily by independent operators, although branding is more
common for new hotel development. We believe that chain affiliation will increase in overseas markets as local economies grow, trade barriers are reduced, international travel accelerates and hotel owners seek the economies of centralized
reservation systems and marketing programs.

Based on lodging
industry data, we have an 8.5 percent share of the U.S. hotel market (based on number of rooms), and less than a 1 percent share of the lodging market outside the United States. We believe that our hotel brands are attractive to hotel owners seeking
a management company or franchise affiliation because our hotels typically generate higher occupancies and Revenue per Available Room (RevPAR) than direct competitors in most market areas. We attribute this performance premium to our
success in achieving and maintaining strong customer preference. We believe that the location and quality of our lodging facilities, our marketing programs, our reservation systems and our emphasis on guest service and satisfaction are contributing
factors across all of our brands.

Properties that we operate
or franchise are regularly upgraded to maintain their competitiveness. Our management, lease and franchise agreements provide for the allocation of funds, generally a fixed percentage of revenue, for periodic renovation of buildings and replacement
of furnishings. We believe that these ongoing refurbishment programs are generally adequate to preserve the competitive position and earning power of the hotels and timeshare properties.

While service excellence is Marriotts hallmark, we continually look for new ways to delight our guests. Currently, we
are focused on elevating the Marriott experience beyond that of a traditional hotel stay to a total guest experience that encompasses exceptional style, personal luxury and superior service. This approach to hospitality, The New Look and Feel
of Marriott Now, is influenced by the worlds foremost innovations in design, technology, culinary expertise, service and comfort. This evolution can be seen across all of our brands, in new and stylish hotel designs, luxurious bedding,
exotic destinations, world-class spas and fitness centers and inspired cuisine. Each brand, luxury or moderately priced, will be more upscale and attuned to customer needs than ever before.

In early 2005, we launched Marriotts At Your Service® program which focuses on the total guest experience
from point of reservation to check-out. As part of the pre-arrival planning service, guests receive a personalized e-mail prior to check-in that includes local transportation, weather and restaurant information, as well as directions and maps. At a
growing number of hotels and resorts, the service has been expanded as a virtual concierge. Guests are able to reserve spa treatments, room service for delivery upon arrival, and other amenities specific to each property. Guests may also
request complimentary amenities that each property offers, such as extra pillows, miniature refrigerators and early check-in/late check-out.

Later in 2005 we also streamlined the travel planning and booking process with the addition of Marriott Flexrez to At Your Service. In addition to booking
hotel rooms on Marriott.com, our online customers can now find competitive airfare and car rental rates as well.

The vacation ownership industry is one of the fastest growing segments in hospitality and is comprised of a number of highly competitive companies
including several branded hotel companies. Since entering the timeshare industry in 1984, we have become a recognized leader in vacation ownership worldwide. Competition in the timeshare, fractional ownership and whole ownership business is based
primarily on the quality and location of timeshare resorts, trust in the brand, the pricing of product offerings and the availability of program benefits, such as exchange programs. We believe that our focus on offering distinct vacation
experiences, combined with our financial strength, diverse market presence, strong brands and well-maintained properties, will enable us to remain competitive. Approximately 37 percent of our timeshare ownership resort sales come from additional
purchases by or referrals from existing owners.

Marriott
Rewards is a frequent guest program with over 23 million members and nine participating Marriott brands. The Marriott Rewards program yields repeat guest business by rewarding frequent stays with points toward free hotel stays and other
rewards, or airline miles with any of 27 participating airline programs. We believe that Marriott Rewards generates substantial repeat business that might otherwise go to competing hotels. In 2005, over 45 percent of our room nights were purchased
by Marriott Rewards members. In addition, the ability of Marriott Vacation Club International timeshare owners to convert unused intervals into Marriott Rewards points enhances the competitive position of our timeshare brand.

Our synthetic fuel operation currently consists of our interest in four coal-based synthetic fuel production facilities (the Facilities), two
of which are located at a coal mine in Saline County, Illinois, and two of which are located at a coal mine in Jefferson County, Alabama. We plan to relocate one of the Alabama Facilities to a coal mine near Evansville, Indiana, over the next 90
days and expect the Facility to be fully operational by May 2006. Production at this Facility will be suspended during the duration of the dismantling, transportation and reassembly process. Three of the four plants are held in one entity, Synthetic
American Fuel Enterprises II, LLC (SAFE II), and one of the plants is held in a separate entity, Synthetic American Fuel Enterprises I, LLC (SAFE I). Section 29 provides tax credits for the production and sale of
synthetic fuels produced from coal through 2007 (credits are not available for fuel produced after 2007). Although the Facilities incur significant losses, these losses are more than offset by the tax credits generated under Section 29, which
reduce our income tax expense.

At both the Alabama and
Illinois locations, the synthetic fuel operation has long-term site leases at sites that are adjacent to large underground mines as well as barge load-out facilities on navigable rivers. In addition, with respect to the Alabama and Illinois
locations, the synthetic fuel operation has long-term coal purchase agreements with the owners of the adjacent coal mines and long-term synthetic fuel sales contracts with a number of major utilities, including the Tennessee Valley Authority and
Alabama Power Company. These contracts ensure that the operation has long-term agreements to purchase coal and sell synthetic fuel through 2007, covering approximately 80 percent of the productive capacity of the Facilities at those locations. From
time to time, the synthetic fuel operation supplements these base contracts, as opportunities arise, by entering into spot contracts to buy coal from these or other coal mines and sell synthetic fuel to these or different end users. We expect to
negotiate similar site lease, coal purchase and synthetic fuel sales contracts for the Indiana site. The long-term contracts can generally be canceled by us in the event that we choose not to operate the Facilities or that the synthetic fuel
produced at the Facilities does not qualify for tax credits under Section 29.

Although we anticipate that the coal mines adjacent to the synthetic fuel operations production sites will be able to fulfill the Facilities requirements for feedstock coal, if our feedstock suppliers
become unable to supply the Facilities with enough coal to satisfy our requirements for any reason, we would have to curtail production, which would have a negative impact on our results of operations, or negotiate new coal supply agreements with
third parties, which might not be available on similar terms. In addition, the synthetic fuel operation has synthetic fuel sale contracts with approximately a dozen customers, a number of whom have contracted to purchase in excess of 10 percent of
the productive capacity at our Alabama and Illinois locations. Although we expect that those customers could be replaced by other purchasers, we cannot assure that we would be able to enter into replacement contracts on equivalent terms. As a
result, the failure by one or more of those customers to perform their purchase obligations under those sale contracts could have a material adverse effect on the synthetic fuel operation.

The synthetic fuel operation has a long-term operations and maintenance
agreement with an experienced manager of synthetic fuel facilities. This manager is responsible for staffing the Facilities, operating and maintaining the machinery and conducting routine maintenance on behalf of the synthetic fuel operation.

Finally, the synthetic fuel operation has a long-term license
and binder purchase agreement with Headwaters Incorporated, which permits the operation to utilize a carboxylated polystyrene copolymer emulsion patented by Headwaters and manufactured by Dow Chemical that is mixed with coal to produce a qualified
synthetic fuel.

As discussed in greater detail below in
Item 1A Risk Factors, the tax credits available under Section 29 for the production and sale of synthetic fuel in any given year are phased out if oil prices in that year are above certain thresholds. As a result of high oil
prices in the first several weeks of 2006, the synthetic fuel operation elected to suspend production of synthetic fuel in mid-January 2006. On February 17, 2006, we restarted production and have taken steps to minimize operating losses that
could occur if more than a majority of the tax credits are phased out in 2006 as a result of high oil prices. We will continue to monitor the situation, and if circumstances warrant, we may again elect to suspend production in the future.

Our Investment

We acquired our initial interest in SAFE I and SAFE II from PacifiCorp
Financial Services (PacifiCorp) in October 2001 for $46 million in cash, and we began operating the Facilities in the first quarter of 2002. We also make annual payments to PacifiCorp based on the amount of tax credits produced, up to a
certain threshold.

On June 21, 2003, we sold an approximately 50 percent ownership interest in both SAFE I and SAFE II.
We received cash and promissory notes totaling $25 million at closing, and we receive additional proceeds based on the actual amount of tax credits allocated to the purchaser.

As a result of a put option associated with the June 21, 2003 sale of a 50 percent ownership interest, we consolidated
the two synthetic fuel joint ventures from that date through November 6, 2003. Effective November 7, 2003, because the put option was voided, we began accounting for the synthetic fuel joint ventures using the equity method of accounting.
Beginning March 26, 2004, as a result of adopting FIN 46(R), Consolidation of Variable Interest Entities, we have again consolidated the synthetic fuel joint ventures, and we reflect our partners share of the operating losses
as minority interest.

On October 6, 2004, we entered into
amendment agreements with our synthetic fuel partner that resulted in a shift in the allocation of tax credits between us. Our partner increased its allocation of tax credits generated by the SAFE I synthetic fuel facility from approximately 50
percent to 90 percent through March 31, 2005, and paid a higher price per tax credit to us for that additional share of tax credits. Effective April 1, 2005, our partners share of the tax credits from SAFE I returned to approximately
50 percent. Also on October 6, 2004, our partner reduced its allocation of tax credits generated by the three SAFE II synthetic fuel facilities from approximately 50 percent to roughly 8 percent through December 31, 2004 and to 1 percent
from January 1, 2005 through May 31, 2005. Effective June 1, 2005, our partners share of the tax credits from the SAFE II facilities returned to approximately 50 percent.

In the 2005 third quarter, we entered into another amendment agreement with
our synthetic fuel partner that gave our partner the right to have its approximately 50 percent ownership interest in SAFE II redeemed on November 30, 2005, or December 31, 2005. Our partner exercised the option to have its interest in
SAFE II redeemed effective on December 31, 2005, subsequent to our 2005 fiscal year-end. As a result, we now own all of the interests in SAFE II. In consideration for the redeemed interest, we forgave the remaining outstanding promissory note
balance of approximately $8 million related to our partners initial purchase of the interest in SAFE II and our partner was relieved of the obligation to make further earn-out payments with respect to SAFE II for periods after
December 31, 2005. On that date, we also eliminated our partners minority interest in SAFE II which was $7 million.

As a result of the redemption of our partners interest in SAFE II, with respect to the period beginning January 1, 2006, we will be allocated
100 percent of the operating losses associated with the Facilities owned by SAFE II, we will receive 100 percent of the tax credits generated by those Facilities, and production decisions with respect to those Facilities will be made based on our
100 percent ownership.

Internal Revenue Service Determinations

On November 7, 2003, the United States
Internal Revenue Service (IRS) issued private letter rulings to the synthetic fuel joint ventures confirming that the synthetic fuel produced by the Facilities is a qualified fuel under Section 29 and that the resulting
tax credit may be allocated among the members of the synthetic fuel joint ventures.

In July 2004, IRS field auditors issued a notice of proposed adjustment and later a Summary Report to PacifiCorp that included a challenge to the placed-in-service dates of the three SAFE II synthetic fuel facilities.
One of the conditions to qualify for tax credits under Section 29 of the Internal Revenue Code is that the production facility must have been placed in service before July 1, 1998. On June 7, 2005, the IRS National Office issued a
Technical Advice Memorandum confirming that the three SAFE II synthetic fuel facilities that were under IRS review met the placed-in-service requirement under Section 29 of the Internal Revenue Code.

Employee Relations

At year-end 2005, we had approximately 143,000 employees. Approximately 9,000 employees were represented by labor unions. We
believe relations with our employees are positive.

Environmental Compliance

Our compliance with laws and regulations relating to
environmental protection and discharge of hazardous materials has not had a material impact on our capital expenditures, earnings or competitive position, and we do not anticipate any material impact from such compliance in the future.

Our internet address is www.marriott.com. On the investor relations portion of our web site,
www.mariott.com/investor, we provide a link to our electronic SEC filings, including our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to these reports. All such filings are
available free of charge and are available as soon as reasonably practicable after filing.

Executive Officers of the Registrant

See Part III, Item 10 of this report for information about our executive officers.

We make forward-looking statements in this
report based on the beliefs and assumptions of our management and on information currently available to us. Forward-looking statements include information about our possible or assumed future results of operations in Managements
Discussion and Analysis of Financial Condition and Results of Operations under the headings Business and Overview, Liquidity and Capital Resources and other statements throughout this report preceded by, followed by or
that include the words believes, expects, anticipates, intends, plans, estimates, or similar expressions.

Forward-looking statements are subject to a number of risks and uncertainties which could cause actual results to differ
materially from those expressed in these forward-looking statements, including risks and uncertainties described below and other factors that we describe from time to time in our periodic filings with the SEC. We therefore caution you not to rely
unduly on any forward-looking statements. The forward-looking statements in this report speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new
information, future developments or otherwise.

Risks and Uncertainties

We are subject to various risks that could have a
negative effect on the Company and its financial condition. You should understand that these risks could cause results to differ materially from those expressed in forward-looking statements contained in this report and in other Company
communications. Because there is no way to determine in advance whether, or to what extent, any present uncertainty will ultimately impact our business, you should give equal weight to each of the following.

The lodging industry is highly competitive, which may impact our ability
to compete successfully with other hotel and timeshare properties for customers. We generally operate in markets that contain numerous competitors. Each of our hotel and timeshare brands competes with major hotel chains in national and
international venues and with independent companies in regional markets. Our ability to remain competitive and to attract and retain business and leisure travelers depends on our success in distinguishing the quality, value and efficiency of our
lodging products and services from those offered by others. If we are unable to compete successfully in these areas, this could limit our operating margins, diminish our market share and reduce our earnings.

We are subject to the range of operating risks common to the hotel,
timeshare and corporate apartment industries. The profitability of the hotels, vacation timeshare resorts and corporate apartments that we operate or franchise may be adversely affected by a number of factors, including:

(1)

the availability of and demand for hotel rooms, timeshares and apartments;

(2)

international, national and regional economic and geopolitical conditions;

(3)

the impact of war and terrorist activity (including threats of terrorist activity) and heightened travel security measures instituted or business and leisure travel in response to
war, terrorist activity or threats;

(4)

the desirability of particular locations and changes in travel patterns;

the occurrence of natural disasters, such as earthquakes, tsunamis or hurricanes;

(7)

taxes and government regulations that influence or determine wages, prices, interest rates, construction procedures and costs;

(8)

the availability and cost of capital to allow us and potential hotel owners and joint venture partners to fund investments;

(9)

regional and national development of competing properties;

(10)

increases in wages and other labor costs, energy, healthcare, insurance, transportation and fuel, and other expenses central to the conduct of our business, including recent
increases in energy costs and further increases forecasted by the Department of Energy for the winter of 2006; and

(11)

organized labor activities, including those in New York, San Francisco, Los Angeles, Waikiki Beach and Boston where some of our hotels are subject to collective bargaining
agreements that will expire in 2006.

Any one or
more of these factors could limit or reduce the demand, and therefore the prices we are able to obtain, for hotel rooms, timeshare units and corporate apartments or could increase our costs and therefore reduce the profit of our lodging businesses.
In addition, reduced demand for hotels could also give rise to losses under loans, guarantees and minority equity investments that we have made in connection with hotels that we manage. Even where such factors do not reduce demand, our profit
margins may suffer if we are unable to fully recover increased operating costs from our customers.

The uncertain pace and duration of the current growth environment in the lodging industry will
continue to impact our financial results and growth. Both the Company and the lodging industry were hurt by several events occurring over the last few years, including the global economic downturn, the terrorist attacks on New York and
Washington in September 2001, the global outbreak of SARS in 2003 and military action in Iraq. Business and leisure travel decreased and remained depressed as some potential travelers reduced or avoided discretionary travel in light of increased
delays and safety concerns and economic declines stemming from an erosion in consumer confidence. Although both the lodging and travel industries have now largely recovered, the duration, pace and full extent of the current growth environment
remains unclear. Moreover, the aftermath of Hurricanes Katrina, Rita, and Wilma and any negative long-term effect that Gulf Coast recovery efforts may have on the U.S. economy could set back or impede the progress of the industrys and our
recovery. Accordingly, our financial results and growth could be harmed if that recovery stalls or is reversed.

Our lodging operations are subject to international, national and regional conditions. Because we conduct our business on a national and
international platform, our activities are susceptible to changes in the performance of regional and global economies. In recent years, our business has been hurt by decreases in travel resulting from recent economic conditions, the military action
in Iraq and the heightened travel security measures that have resulted from the threat of further terrorism. Our future economic performance is similarly subject to the uncertain magnitude and duration of the economic recovery in the United States,
the prospects of improving economic performance in other regions, the unknown pace of any business travel recovery that results and the occurrence of any future incidents in the countries in which we operate.

Actions by organized labor could reduce our profits in certain major
market cities. Employees at certain of our managed hotels are covered by collective bargaining agreements that will expire in 2006. These agreements affect 14 hotels in New York, San Francisco, Los Angeles, Waikiki Beach and Boston. Potential
labor activities could cause the diversion of business to hotels that are not involved in the negotiations, loss of group business in the affected cities and perhaps other cities, and/or increased labor costs. In 2005, affected hotels in these
cities contributed approximately 2 percent of our combined base management, incentive management and franchise fee revenue. In 2005, we earned approximately 6 percent of our combined base management, incentive management and franchise fee revenue
from downtown hotels (union and non-union) in affected markets.

Our growth strategy depends upon third-party owners/operators, and future arrangements with these third parties may be less favorable. Our present growth strategy for development of additional lodging facilities entails entering into
and maintaining various arrangements with property owners. The terms of our management agreements, franchise agreements and leases for each of our lodging facilities are influenced by contract terms offered by our competitors, among other things. We
cannot assure you that any of our current arrangements will continue. Moreover, we may not be able to enter into future collaborations, or to renew or enter into agreements in the future, on terms that are as favorable to us as those under existing
collaborations and agreements.

We may have disputes with
the owners of the hotels that we manage or franchise. Consistent with our focus on management and franchising, we own very few of our lodging properties. The nature of our responsibilities under our management agreements to manage each hotel and
enforce the standards required for our brands under both management and franchise agreements may, in some instances, be subject to interpretation and may give rise to disagreements. We seek to resolve any disagreements in order to develop and
maintain positive relations with current and potential hotel owners and joint venture partners but have not always been able to do so. Failure to resolve such disagreements has in the past resulted in litigation, and could do so in the future.

Our ability to grow our management and franchise systems is
subject to the range of risks associated with real estate investments. Our ability to sustain continued growth through management or franchise agreements for new hotels and the conversion of existing facilities to managed or franchised Marriott
brands is affected, and may potentially be limited, by a variety of factors influencing real estate development generally. These include site availability, financing, planning, zoning and other local approvals and other limitations that may be
imposed by market and submarket factors, such as projected room occupancy, changes in growth in demand compared to projected supply, territorial restrictions in our management and franchise agreements, costs of construction, and anticipated room
rate structure.

We depend on capital to buy and maintain
hotels, and we may be unable to access capital when necessary. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both the Company and current and potential hotel owners must periodically spend money. The
availability of funds for new investments and maintenance of existing hotels depends in large measure on capital markets and liquidity factors over which we can exert little control. Our ability to recover loan and guarantee advances from hotel
operations or from owners through the proceeds of hotel sales, refinancing of debt or otherwise may also affect our ability to recycle and raise new capital.

Our development activities expose us to project cost, completion and resale risks. We develop new
hotel, timeshare, fractional ownership and personal residence ownership properties, both directly and through partnerships, joint ventures, and other business structures with third parties. Our involvement in the development of properties presents a
number of risks, including that (1) construction delays, cost overruns, or acts of God such as earthquakes, hurricanes, floods or fires may increase overall project costs or result in project cancellations; (2) we may be unable to recover
development costs we incur for projects that are not pursued to completion; (3) conditions within capital markets may limit our ability, or that of third parties with whom we do business, to raise capital for completion of projects that have
commenced or development of future properties; and (4) properties that we develop could become less attractive due to changes in mortgage rates, market absorption, or oversupply, with the result that we may not be able to sell such properties
for a profit or at the prices we anticipate.

Development
activities which involve our co-investment with third parties may further increase completion risk or result in disputes which could increase project costs or impair project operations. Partnerships, joint ventures and other business structures
involving our co-investment with third parties generally include some form of shared control over the operations of the business, and create additional risks, including the possibility that other investors in such ventures could become bankrupt or
otherwise lack the financial resources to meet their obligations, or could have or develop business interests, policies or objectives that are inconsistent with ours. Although we actively seek to minimize such risks before investing in partnerships,
joint ventures, or similar structures, actions by another investor may present additional risks of project delay, increased project costs, or operational difficulties following project completion.

In the event of damage to or other potential losses involving properties
that we own, manage or franchise, potential losses may not be covered by insurance. We have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary. Market forces beyond our
control may nonetheless limit both the scope of property and liability insurance coverage that we can obtain and our ability to obtain coverage at reasonable rates. There are certain types of losses, generally of a catastrophic nature, such as
earthquakes, hurricanes and floods or terrorist acts, that may be uninsurable or may be too expensive to justify insuring against. As a result, we may not be successful in obtaining insurance without increases in cost or decreases in coverage
levels. In addition, we may carry insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment or that of hotel owners or in some cases
could also result in certain losses being totally uninsured. As a result, we could lose all, or a portion of, the capital we have invested in a property, as well as the anticipated future revenue from the property, and we could remain obligated for
guarantees, debt or other financial obligations related to the property.

Risks relating to acts of God, contagious disease, terrorist activity and war could reduce the demand for lodging, which may adversely affect our revenues. Acts of God, such as hurricanes, earthquakes and other
natural disasters and the spread of contagious diseases, such as SARS and Avian Flu, in locations where we own, manage or franchise significant properties and areas of the world from which we draw a large number of customers can cause a decline in
the level of business and leisure travel and reduce the demand for lodging. Wars (including the potential for war), terrorist activity (including threats of terrorist activity), political unrest and other forms of civil strife and geopolitical
uncertainty can have a similar effect. Any one or more of these events may reduce the overall demand for hotel rooms, timeshare units and corporate apartments or limit the prices that we are able to obtain for them, both of which could adversely
affect our revenues.

An increase in the use of third-party
internet reservation services could adversely impact our revenues. Some of our hotel rooms are booked through internet travel intermediaries, such as Travelocity.com®, Expedia.com® and Priceline.com®, serving both the leisure and, increasingly, the corporate travel and group meeting sectors. While Marriotts Look No Further® Best Rate Guarantee has greatly reduced the ability
of these internet travel intermediaries to undercut the published rates of Marriott hotels, these internet travel intermediaries continue their attempts to commoditize hotel rooms by aggressively marketing to price-sensitive travelers and corporate
accounts and increasing the importance of general indicators of quality (such as three-star downtown hotel) at the expense of brand identification. These agencies hope that consumers will eventually develop brand loyalties to their
travel services rather than to our lodging brands. Although we expect to continue to maintain and even increase the strength of our brands in the online marketplace, if the amount of sales made through internet intermediaries increases
significantly, our business and profitability may be harmed.

Changes in privacy law could adversely affect our ability to market our products effectively. Our
Timeshare segment, and to a lesser extent our other lodging segments, rely on a variety of direct marketing techniques, including telemarketing and mass mailings. Recent initiatives, such as the National Do Not Call Registry and various state laws
regarding marketing and solicitation, including anti-spam legislation, have created some concern about the continuing effectiveness of telemarketing and mass mailing techniques and could force further changes in our marketing strategy. If this
occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our sales of timeshare units and other products. We also obtain lists of potential customers from travel service providers
with whom we have substantial relationships and market to some individuals on these lists directly. If the acquisition of these lists were outlawed or otherwise restricted, our ability to develop new customers and introduce them to our products
could be impaired.

Operating risks at our synthetic fuel
operations could reduce the tax benefits generated by those facilities. The Company owns an interest in four synthetic fuel production facilities. The Internal Revenue Code provides tax credits for the production and sale of synthetic fuels
produced from coal through 2007. Although our synthetic fuel facilities incur significant losses, those losses are more than offset by the tax credits generated, which reduce our income tax expense. Problems related to supply, production and demand
at any of the synthetic fuel facilities, the power plants and other end users that buy synthetic fuel from the facilities, or the coal mines from which the facilities buy coal could diminish the productivity of our synthetic fuel operations and
adversely impact the ability of those operations to generate tax credits.

High oil prices in 2006 and beyond could reduce or eliminate the tax credits generated by our synthetic fuel facilities. The tax credits available under the Internal Revenue Code for the production and sale of
synthetic fuel in any given year are phased out if the Reference Price of a barrel of oil for that year falls within a specified price range. The Reference Price of a barrel of oil is an estimate of the annual average wellhead price per
barrel of domestic crude oil and is determined for each calendar year by the Secretary of the Treasury by April 1 of the following year. In 2003 and 2004, the Reference Price was approximately equal to 89 percent of the average price in those
years of the benchmark NYMEX futures contract for a barrel of light, sweet crude oil. The price range within which the tax credit is phased out was set in 1980 and is adjusted annually for inflation. In 2004, the phase-out range was $51.35 to
$64.47. Because the Reference Price for a barrel of oil for 2004 was below that range, at $36.75, there was no reduction of the tax credits available for synthetic fuel produced and sold in 2004.

Assuming a 2 percent inflation adjustment factor for 2005 and assuming that
the ratio of the Reference Price to the average wellhead price of the benchmark NYMEX futures contract remains approximately the same in 2005 as it was in 2004, we currently estimate that, because the average NYMEX price for January through December
2005 was approximately $56.71, there was no reduction of the tax credits available for synthetic fuel produced and sold in 2005. Assuming a 2 percent inflation adjustment factor for each of 2005 and 2006 and assuming that the ratio of the Reference
Price to the average price of the benchmark NYMEX futures contract remains the same in 2006 as it was in 2004, we currently estimate that the tax credits available for production and sale of synthetic fuel in 2006 would begin to be phased out if the
average price of the benchmark NYMEX futures contract in 2006 exceeds approximately $60 and would be fully phased out if the average price of the benchmark NYMEX futures contract in 2006 exceeds approximately $75. The average price of the benchmark
NYMEX futures contract for 2006, through February 16, 2006 was $64.36. As a result of high oil prices in the first several weeks of 2006, the synthetic fuel operation elected to suspend production of synthetic fuel in mid-January 2006. On
February 17, 2006, we restarted production and have taken steps to minimize operating losses that could occur if more than a majority of tax credits are phased out in 2006 as a result of high oil prices. We will continue to monitor the
situation, and if circumstances warrant, we may again suspend production in the future.

We cannot predict with any accuracy the future price of a barrel of oil. If the Reference Price of a barrel of oil in 2006 or 2007 exceeds the applicable phase-out threshold for those years, the tax credits
generated by our synthetic fuel facilities in those years could be reduced or eliminated, which would have a negative impact on our results of operations.

Company-operated properties are described in Part I, Item 1, Business earlier in this report. We believe our properties are in generally good physical condition with the need for only routine repairs and maintenance and
periodic capital improvements. Most of our regional offices and reservation centers, both domestically and internationally, are located in leased facilities. We also lease space in six office buildings with combined space of approximately
1.3 million square feet in Maryland and Florida where our corporate, Ritz-Carlton and Marriott Vacation Club International headquarters are located.

From time to time, we are subject to certain legal proceedings and claims in the ordinary course of business. We currently are not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a
material adverse effect on our business, financial condition or operating results.

The range of prices of our common stock and dividends declared per share for each quarterly period within the last two years are as follows:

Stock Price

Dividends

DeclaredPer Share

High

Low

2004

First Quarter

$

46.80

$

40.64

$

0.075

Second Quarter

51.50

41.82

0.085

Third Quarter

50.48

44.95

0.085

Fourth Quarter

63.99

48.15

0.085

Stock Price

Dividends

DeclaredPer Share

High

Low

2005

First Quarter

$

68.00

$

60.71

$

0.085

Second Quarter

70.01

60.40

0.105

Third Quarter

70.78

60.41

0.105

Fourth Quarter

68.32

58.01

0.105

At February 10,
2006, there were 250,352,719 shares of Class A Common Stock outstanding held by 45,521 shareholders of record. Our Class A Common Stock is traded on the New York Stock Exchange, Chicago Stock Exchange, Pacific Stock Exchange and
Philadelphia Stock Exchange. The year-end closing price for our stock was $66.97 on December 30, 2005 and $62.98 on December 31, 2004. All prices are reported on the consolidated transaction reporting system.

Fourth Quarter 2005 Issuer Purchases of Equity Securities

(in millions, except per share amounts)

Period

TotalNumber ofSharesPurchased

AveragePrice perShare

Total Number of

Shares Purchasedas Part of PubliclyAnnounced Plansor Programs (1)

Maximum

Number of Shares

That May Yet Be

Purchased Under

the Plans or

Programs (1)

September 10, 2005  October 7, 2005

2.3

$

61.47

2.3

21.0

October 8, 2005  November 4, 2005

1.6

60.35

1.6

19.4

November 5, 2005  December 2, 2005

1.1

62.98

1.1

18.3

December 3, 2005  December 30, 2005

0.4

67.05

0.4

17.9

(1)

On August 4, 2005, we announced that our Board of Directors increased by 25.0 million shares the authorization to repurchase our common stock for a total outstanding
authorization of approximately 28.8 million shares on that date. That authorization is ongoing and does not have an expiration date. We repurchase shares in the open-market and in privately negotiated transactions.

The following table presents a summary of selected historical financial data for the Company derived from our financial statements as of and for our last seven fiscal years.

Since the information in this table is only a summary and does not provide all of the information contained in our
financial statements, including the related notes, you should read Managements Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements.

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

BUSINESS AND OVERVIEW

We are a worldwide operator and franchisor of 2,741 hotels and related facilities. Our operations are grouped into five business segments: Full-Service
Lodging, Select-Service Lodging, Extended-Stay Lodging, Timeshare and Synthetic Fuel. In our Lodging business, we operate, develop and franchise under 13 separate brand names in 67 countries and territories. We also operate and develop Marriott
timeshare properties under four separate brand names.

We earn
base, incentive and franchise fees based upon the terms of our management and franchise agreements. Revenues are also generated from the following sources associated with our Timeshare segment: (1) selling timeshare intervals and personal
residences, (2) operating the resorts, and (3) financing customer purchases of timesharing intervals. In addition, we earn revenues from the limited number of hotels we own and lease and we earn revenues and generate tax credits from our
synthetic fuel operations.

We evaluate the performance of our
segments based primarily on the results of the segment without allocating corporate expenses, interest expense and interest income. With the exception of our Synthetic Fuel segment, we do not allocate income taxes to our segments. As timeshare note
sales are an integral part of the timeshare business, we include timeshare note sale gains in our timeshare segment results, and we allocate other gains and losses as well as equity earnings or losses from our joint ventures and divisional general,
administrative and other expenses to each of our segments.

Similar to conditions that existed last year, lodging supply growth in the United States was low during 2005, while demand growth was high. As a result, both occupancies and average daily rates continued to rise. Transient demand, both
business and leisure, was strong in 2005, and we experienced particularly robust pricing power associated with that demand. In addition, our group rates are continuing to increase as business negotiated in earlier years at lower rates is being
replaced with business negotiated at higher rates. In the United States, demand was strongest in the Eastern and Western regions, while the Midwestern and South Central regions experienced more moderate increases in demand. Demand was also strong in
Hawaii.

The weak U.S. dollar, in relation to other currencies,
helped increase travel, versus the prior year, into the United States. In addition, we saw increased demand associated with U.S. vacationers who were also impacted by the weak U.S. dollar and traveled domestically instead of abroad. Outside of the
United States we experienced stronger demand versus the prior year, particularly in China, Hong Kong, the Middle East, Mexico and the Caribbean. Demand in Europe and South American countries continues to remain less robust, as some economies
continue to emerge from a slowdown.

See Part I, Item 1A,
Risk Factors of this report for important information regarding forward-looking statements made in this report and risks and uncertainties that the Company faces.

CONSOLIDATED RESULTS

The following discussion presents an analysis of results of our operations for 2005, 2004 and 2003.

Continuing Operations

Revenues

2005 Compared to 2004

Revenues increased 14 percent to $11,550 million in 2005 from $10,099 million in 2004, as a result of strong demand for hotel rooms worldwide.
Year-over-year RevPAR increases were driven primarily by rate increases and to a lesser extent by occupancy improvement. The increase in revenue versus the prior year also reflects recognition in 2005 of $14 million of incentive fees that were
calculated based on prior period results, but not earned and due until 2005. Higher timeshare interval, fractional, and whole ownership sales and services revenue reflecting higher financially reportable development revenue also improved our 2005
revenues. In addition, revenues increased due to the consolidation of our synthetic fuel operations from the start of the 2004 second quarter which resulted in the recognition of revenue for all of 2005 versus only three quarters in 2004, as we
accounted for the synthetic fuel operations using the equity method of accounting in the 2004 first quarter. Further, owned and leased revenue increased significantly, primarily as a result of the purchase of 13 formerly managed properties (see the
CTF Holdings Ltd. discussion later in this report under the Acquisitions caption in the Liquidity and Capital Resources section).

The 14 percent increase in total revenue includes $743 million of increased cost reimbursements revenue,
to $7,671 million in 2005 from $6,928 million in the prior year. This revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are
the employer. As we record cost reimbursements based upon the costs incurred with no added mark-up, this revenue and related expense have no impact on either our operating income or net income. The increase in reimbursed costs is primarily
attributable to the growth in the number of properties we manage.

We added 45 managed properties (4,519 rooms) to our system in 2005 (including the Whitbread properties more fully discussed later in this report under the caption Marriott and Whitbread Joint Venture in the
Liquidity and Capital Resources section).

2004 Compared
to 2003

Revenues increased 12 percent to $10,099
million in 2004 from $9,014 million in 2003, primarily reflecting higher fees related to increased demand for hotel rooms and unit expansion, as well as higher timeshare interval, fractional, and whole ownership sales and services revenue reflecting
higher financially reportable development revenue.

Operating Income

2005 Compared to 2004

Operating income increased $78 million to $555 million in 2005 from $477
million in the prior year, primarily as a result of the following items: a combined base, incentive and franchise fee improvement of $154 million reflecting a stronger demand environment; $51 million of stronger timeshare interval, fractional, and
whole ownership sales and services revenue net of direct expenses reflecting higher financially reportable development revenue; and $65 million of stronger owned, leased, corporate housing and other revenue net of direct expenses. The fee
improvement versus the prior year also reflects the recognition in 2005 of $14 million of incentive fees that were calculated based on prior period results, but not earned and due until 2005. The increase in owned, leased, corporate housing and
other revenue net of direct expenses is primarily attributable to properties acquired in 2005, including the CTF properties, the strong demand environment in 2005, and our receipt in 2005, of a $10 million termination fee associated with one
property that left our system.

The favorable items
noted above were partially offset by $146 million of increased general and administrative expenses and $46 million of lower synthetic fuel revenue net of synthetic fuel expenses. Increased general and administrative expenses were associated with our
Lodging segments as unallocated general and administrative expenses were down slightly compared to the prior year. The increase in general, administrative and other expenses reflects a $94 million pre-tax charge impacting our Full-Service Lodging
segment, primarily due to the non-cash write-off of deferred contract acquisition costs associated with the termination of management agreements (discussed more fully later in this report in the CTF Holdings Ltd. discussion under the
Investing Activities Cash Flows caption in the Liquidity and Capital Resources section), and $30 million of pre-tax expenses associated with our bedding incentive program, impacting our Full-Service, Select-Service and
Extended-Stay Lodging segments. We implemented the bedding incentive program in 2005 to ensure that guests could enjoy the comfort and luxury of our new bedding by year-end 2005. General and administrative expenses in 2005 also reflect pre-tax
performance termination cure payments of $15 million associated with two properties, a $9 million pre-tax charge associated with three guarantees, increased other net overhead costs of $13 million including costs related to the Companys unit
growth, development and systems, and $2 million of increased foreign exchange losses partially offset by $5 million of lower litigation expenses. Additionally, in 2004, general and administrative expenses included a $13 million charge associated
with the write-off of deferred contract acquisition costs.

Operating income for 2005 includes a synthetic fuel operating loss of $144 million versus $98 million of operating losses in the prior year, reflecting increased costs and the consolidation of our synthetic fuel operations from the start of
the 2004 second quarter, which resulted in the recognition of revenue and expenses for all of 2005 versus only three quarters in 2004, as we accounted for the synthetic fuel operations using the equity method of accounting in the 2004 first quarter.
For additional information, see our Synthetic Fuel segment discussion later in this report.

2004 Compared to 2003

Operating income increased $100 million to $477 million in 2004 from $377 million in 2003. The increase is primarily due to higher fees, which are related both to stronger RevPAR, driven by increased occupancy and average daily rate, and to
the growth in the number of rooms, and strong timeshare results, which are mainly attributable to strong demand and improved margins, partially offset by higher general and administrative expenses. General, administrative and other expenses
increased $84 million in 2004 to $607 million from $523 million in 2003, primarily reflecting higher administrative expenses in our Full-Service, Select-Service, and Extended-Stay segments ($55 million) and Timeshare segment ($24 million), primarily
associated with increased overhead costs related to

the Companys unit growth and timeshare development, and a $10 million reduction in foreign exchange gains, offset
by $6 million of lower litigation expenses. Higher general and administrative expenses of $84 million also reflect a $13 million write-off of deferred contract acquisition costs as further discussed in the 2004 Compared to 2003 caption
under the Select-Service Lodging heading later in this report.

Gains and Other Income

The following table
shows our gains and other income for 2005, 2004, and 2003.

($ in millions)

2005

2004

2003

Timeshare note sale gains

$

69

$

64

$

64

Gains on sales of joint venture investments

7

19

21

Synthetic fuel earn-out payments received, net

32

28



Gains on sales of real estate and other

34

48

21

Other note sale/repayment gains

25

5



Income from cost method joint ventures

14





$

181

$

164

$

106

Interest Expense

2005 Compared to 2004

Interest expense increased $7 million (7 percent) to $106 million in 2005 from $99 million in the prior year, reflecting
increased debt levels which helped to facilitate significantly higher capital expenditures and share repurchases in 2005. Interest expense in 2005 reflected our June 2005 Series F Senior Notes issuance, and, versus the prior year, higher commercial
paper balances coupled with higher rates. Included within interest expense for 2005 are charges totaling $29 million relating to interest on accumulated cash inflows from owners, in advance of our cash outflows for various programs that we operate
on the owners behalf, including the Marriott Rewards, Gift Certificates, and Self-Insurance programs. The increase over 2004 is related to higher liability balances and higher interest rates. Partially offsetting these increases were interest
expense declines associated with the payoff, at maturity, of both our Series D Senior Notes in April 2005 and Series B Senior Notes in November 2005 and the capitalization of more interest associated with the development of timeshare properties.

2004 Compared to 2003

Interest expense decreased $11 million to $99 million in 2004 from $110
million in the prior year, reflecting the repayment of $234 million of senior debt in the fourth quarter of 2003 and other subsequent debt reductions, partially offset by lower capitalized interest resulting from fewer projects under construction,
primarily related to our Timeshare segment. Included within interest expense for 2004 and 2003 are charges totaling $11 million and $8 million, respectively, associated with programs operated on behalf of owners as described above.

Interest Income, Provision for Loan Losses, and Income Tax

2005 Compared to 2004

Interest income, before the provision for loan losses, decreased $67 million (46 percent) to $79 million in 2005 from $146
million in the prior year, primarily reflecting the impact of loans repaid to us. The repayments are described more fully under the Loan Activity caption in the Liquidity and Capital Resources section later in this report.
Our provision for loan losses increased $36 million versus the prior year reflecting an $11 million charge in 2005 associated with one property and a pre-tax charge of $17 million in 2005 due to the impairment of our Delta Air Lines, Inc. aircraft
leveraged lease, as discussed more fully under the Investment in Leveraged Lease caption in the Liquidity and Capital Resources section later in this report.

Income from continuing operations before income taxes and minority interest generated a tax provision of $94 million for
2005, compared to a tax provision of $100 million for 2004. The difference is primarily attributable to the impact of the synthetic fuel joint ventures, which generated a net tax benefit of $190 million in 2005, compared to a net tax benefit of $165
million in 2004, and to a lower tax rate before the impact of the Synthetic Fuel segment in 2005, as a result of a higher proportion of income in countries with lower effective tax rates. Higher taxes associated with higher pre-tax income in 2005
partially offset these favorable tax impacts. For additional information see the analysis of results of operations for the Synthetic Fuel segment later in this report.

Interest income, before the provision for loan losses, increased $17 million (13 percent) to $146 million in 2004 from $129 million in the prior year,
reflecting higher loan balances, including the $200 million note collected in the third quarter of 2004 related to the acquisition by Cendant Corporation of our interest in the Two Flags joint venture and higher interest rates. We recognized $9
million of interest income associated with the $200 million note, which was issued early in the 2004 second quarter. Our provision for loan losses for 2004 was a benefit of $8 million and includes $3 million of reserves for loans deemed
uncollectible at three hotels, offset by the reversal of $11 million of reserves no longer deemed necessary.

Income from continuing operations before income taxes and minority interest generated a tax provision of $100 million in 2004, compared to a tax benefit
of $43 million in 2003. The difference is primarily attributable to the impact of the synthetic fuel joint venture, which generated a tax benefit and tax credits of $165 million in 2004, compared to $245 million in 2003 and to higher pre-tax income.
For additional information see the analysis of our results of operations for the Synthetic Fuel segment later in this report.

Equity in Earnings (Losses)

2005 Compared to 2004

Equity in earnings (losses) of equity method investees increased $78 million from a net loss of $42 million in 2004 to net earnings of $36 million in
2005. Twenty-eight million dollars of the increase is attributable to our synthetic fuel joint ventures which we reported as an equity investment in the 2004 first quarter, versus consolidation of the joint ventures for the periods thereafter. For
additional information see the analysis of results of operations for the Synthetic Fuel segment later in this report. The remaining $50 million increase from the prior year is primarily attributable to significant 2005 asset sale gains in several
joint ventures producing higher earnings from joint ventures and, to a lesser extent, the stronger 2005 lodging demand environment and the mix of investments in each year.

2004 Compared to 2003

Equity in earnings (losses) of equity method investees decreased to a net loss of $42 million in 2004 from a net loss of $7 million in 2003. In 2003, we
recognized equity earnings of $24 million associated with our interest in the Two Flags joint venture, while in 2004 we only recognized $6 million of equity earnings due to the redemption of our interest. In addition, we had equity income from our
synthetic fuel joint ventures of $10 million in 2003 compared to equity losses of $28 million in 2004. The improved business environment in 2004 and the mix of investments versus the prior year favorably impacted our equity income by $21 million,
partially offsetting the aforementioned negative variances. For additional information see the analysis of results of operations for the Synthetic Fuel segment later in this report.

Minority Interest

2005 Compared to 2004

Minority interest increased from a benefit of $40 million in 2004 to a benefit of $45 million in 2005, primarily as a result of the change in the method
of accounting for our synthetic fuel operations. For 2004, minority interest reflects our partners share of the synthetic fuel losses from March 26, 2004 (when we began consolidating the ventures due to the adoption of FIN 46(R)), through
year-end. For 2005, minority interest reflects our partners share of the synthetic fuel losses for the entire year. As further described in the Synthetic Fuel caption in Part I, Item 1 Business. On the first day of
our 2006 fiscal year, we redeemed our partners interest in SAFE II. Accordingly, in 2006, minority interest will only represent our partners share of the losses in SAFE I. For additional information see the analysis of results of
operations for the Synthetic Fuel segment later in this report.

2004
Compared to 2003

Minority interest increased from an
expense of $55 million in 2003 to a benefit of $40 million in 2004, primarily as a result of the impact of a change in the method of accounting for our synthetic fuel operations. Due to the purchasers put option, which expired on
November 6, 2003, minority interest for 2003 reflected our partners share of the synthetic fuel operating losses and its share of the associated tax benefit, along with its share of the tax credits from the June 21, 2003, sale date
through the put options expiration date, when we began accounting for the ventures under the equity method of accounting. For 2004, minority interest reflects our partners share of the synthetic fuel losses from March 26, 2004 (when
we began consolidating the ventures due to the adoption of FIN 46(R)), through year-end. For additional information see the analysis of results of operations for the Synthetic Fuel segment later in this report.

Income from continuing operations increased $74 million (12 percent) to $668 million in 2005 versus the prior year, and diluted earnings per share from
continuing operations increased $0.42 (17 percent) to $2.89. As discussed above in more detail, the increase in income from continuing operations from the prior year is primarily due to the strong demand environment, increased owned, leased and
corporate housing and other revenue net of direct expenses (principally reflecting owned and leased properties acquired in the 2005 third quarter), increased timeshare interval, fractional, and whole ownership sales and services revenue net of
direct expenses, stronger equity income, higher gains and other income, and lower taxes. As discussed above in more detail, increased general and administrative expenses reflecting, among other things, the write-off of deferred contract acquisition
costs in connection with the CTF transaction and expenses associated with our bedding incentive program, lower synthetic fuel revenue net of synthetic fuel expenses, lower interest income, higher interest expense, and a higher loan loss provision
partially offset these favorable items.

Timeshare, which includes the development, marketing, operation and sale of timeshare, fractional, and whole ownership properties under the Marriott Vacation Club
International, The Ritz-Carlton Club, Grand Residences by Marriott and Horizons by Marriott Vacation Club brands; and



Synthetic Fuel, which includes our interest in the operation of coal-based synthetic fuel production facilities.

We evaluate the performance of our segments based primarily on the results of
the segment without allocating corporate expenses, interest income, provision for loan losses, and interest expense. With the exception of the Synthetic Fuel segment, we do not allocate income taxes to our segments. As timeshare note sales are an
integral part of the timeshare business, we include timeshare note sale gains in our Timeshare segment results, and we allocate other gains as well as equity in earnings (losses) from our joint ventures and divisional general, administrative and
other expenses to each of our segments. Unallocated corporate expenses represent that portion of our general, administrative and other expenses and equity in earnings (losses) that are not allocable to our segments.

We have aggregated the brands and businesses presented within each of our
segments considering their similar economic characteristics, types of customers, distribution channels and the regulatory business environment of the brands and operations within each segment.

Lodging includes our Full-Service, Select-Service, Extended-Stay and
Timeshare segments. We consider Lodging revenues and Lodging financial results to be meaningful indicators of our performance because they measure our growth in profitability as a lodging company and enable investors to compare the sales and results
of our lodging operations to those of other lodging companies.

We consider RevPAR to be a meaningful indicator of our performance because it measures the period-over-period change in room revenues for comparable properties. We calculate RevPAR by dividing room sales for comparable properties by room
nights available to guests for the period. RevPAR may not be comparable to similarly titled measures, such as revenues.

We added 134 properties (21,611 rooms) and deflagged 25 properties (4,755 rooms) in 2005. Most of the deflagged properties were Fairfield Inn properties.

Lodging reported financial results of $1,019 million in 2005, compared to $835 million in 2004, and revenues of $11,129 million in 2005, a 14 percent
increase from revenues of $9,778 million in 2004. The results as compared to the prior year reflect a $154 million (18 percent) increase in base, franchise and incentive fees from $873 million in 2004 to $1,027 million in 2005, stronger timeshare
sales and services revenue net of direct expenses, stronger owned, leased, corporate housing and other revenue, net of direct expenses, improved equity income and higher gains. The increase in base and franchise fees was driven by higher RevPAR for
comparable rooms, primarily resulting from both domestic and international rate increases and new unit growth. Incentive management fees increased $59 million (42 percent) in 2005 versus the prior year, reflecting the impact of increased travel
worldwide driving strong property level profits. The increase also reflects recognition in 2005 of $14 million of incentive fees that were calculated based on prior period results, but not earned and due until 2005. In 2005, 50 percent of our
managed properties paid incentive fees to us versus 32 percent in 2004. Increased general and administrative expenses of $146 million, as discussed in the earlier Operating Income discussion, partially offset these improvements.

We added 166 properties (27,038 rooms) and deflagged 42 properties (7,335 rooms) from year-end 2003 to year-end 2004. Most of the deflagged properties
were Fairfield Inn properties. In addition, 210 properties (28,081 rooms) exited our system as a result of the sale of the Ramada International Hotels & Resorts franchised brand.

Lodging reported financial results of $835 million in 2004, compared to $702 million in 2003, and revenues of $9,778 million
in 2004, a 12 percent increase from revenues of $8,712 million in 2003. The results reflect a $131 million (18 percent) increase in base, franchise and incentive fees from $742 million in 2003 to $873 million in 2004, favorable Timeshare segment
results and increased gains and joint venture results of $36 million. The increase in base and franchise fees was driven by higher RevPAR for comparable rooms, primarily resulting from both domestic and international occupancy and average daily rate
increases and new unit growth. In 2004, 32 percent of our managed properties paid incentive fees to us versus 29 percent in the prior year.

Systemwide RevPAR for comparable North American properties increased 8.5 percent, and RevPAR for our comparable North American company-operated properties
increased 8.6 percent. Systemwide RevPAR for comparable international properties increased 14.2 percent, and RevPAR for comparable international company-operated properties increased 16.6 percent. The increase in incentive management fees during the
year primarily reflects the impact of increased international demand, particularly in Asia and the Middle East, and increased business at properties throughout North America. Worldwide RevPAR for comparable company-operated properties increased 10.5
percent, while worldwide RevPAR for comparable systemwide properties increased 9.6 percent.

Lodging Development

We
opened 134 properties totaling 21,611 rooms, across our brands in 2005, and 25 properties (4,755 rooms), predominantly Fairfield Inn properties, were deflagged and exited the system. Highlights of the year included:



We converted 33 properties (5,846 rooms), or 27 percent of our gross room additions for the year, from other brands.

We currently have more than 70,000 rooms under construction, awaiting conversion, or approved for
development in our development pipeline, and we expect to add approximately 25,000 hotel rooms and timeshare units to our system in 2006. These growth plans are subject to numerous risks and uncertainties, many of which are outside of our control.
See the Forward-Looking Statements and Risks and Uncertainties captions earlier in this report and the Liquidity and Capital Resources caption later in this report.

RevPAR

The following tables show, for 2005 and 2004, occupancy, average daily rate and RevPAR for each of our comparable North
American principal established brands and for our international properties by either region or brand. We have not presented statistics for company-operated North American Fairfield Inn properties in these tables because we operate only a limited
number of properties, as this brand is predominantly franchised and such information would not be meaningful (identified as nm in the tables that follow). Systemwide statistics include data from our franchised properties, in addition to
our owned, leased and managed properties.

For North American
properties the occupancy, average daily rate and RevPAR statistics used throughout this report for 2005 include the period from January 1, 2005 through December 30, 2005, the statistics for 2004 include the period from January 3, 2004
through December 31, 2004, and the statistics for 2003 include the period from January 4, 2003 through January 2, 2004 (except in each case, for The Ritz-Carlton and International properties, which includes the period from
January 1 through December 31).

International financial results are reported on a period-end basis, while international statistics are reported on a month-end basis.

(2)

The comparison to 2004 is on a currency-neutral basis and includes results for January through December. Excludes North America (except for Worldwide).

(3)

Regional information includes the Marriott Hotels & Resorts, Renaissance Hotels & Resorts and Courtyard brands. Does not include The Ritz-Carlton
brand.

(4)

Excludes Hawaii.

(5)

Includes Hawaii.

(6)

Includes international statistics for the twelve calendar months ended December 31, 2005
and December 31, 2004, and North American statistics for the fifty-two weeks ended December 30, 2005 and December 31, 2004. Includes the Marriott Hotels & Resorts, Renaissance Hotels & Resorts, The Ritz-Carlton,
Courtyard, Residence Inn, TownePlace Suites, Fairfield Inn and SpringHill Suites brands.

International financial results are reported on a period-end basis, while international statistics are reported on a month-end basis.

(2)

The comparison to 2003 is on a currency-neutral basis and includes results for January through December. Excludes North America (except for Worldwide).

(3)

Regional information includes the Marriott Hotels & Resorts, Renaissance Hotels & Resorts and Courtyard brands. Does not include The Ritz-Carlton
brand.

(4)

Excludes Hawaii.

(5)

Includes Hawaii.

(6)

Includes international statistics for the twelve calendar months ended December 31, 2004
and December 31, 2003, and North American statistics for the fifty-two weeks ended December 31, 2004 and January 2, 2004. Includes the Marriott Hotels & Resorts, Renaissance Hotels & Resorts, The Ritz-Carlton,
Courtyard, Residence Inn, TownePlace Suites, Fairfield Inn and SpringHill Suites brands.

Full-Service Lodging includes our Marriott Hotels & Resorts, The
Ritz-Carlton, Renaissance Hotels &Resorts, Ramada International and Bulgari Hotels & Resorts brands. As discussed more fully earlier in this report in Part I, under the Ramada International caption
in the Item 1 Business section, we sold Ramada International in 2004.

Compared to the prior year, our 2005 segment results reflect a $91 million increase in base management, incentive management and franchise fees and $73 million of increased owned, leased and other revenue net of direct expenses, which
includes a $10 million termination fee payment to us associated with one property that left our system, partially offset by $6 million of severance payments and other costs associated with the temporary closing of a leased property undergoing
renovation. The increase in fees is largely due to stronger RevPAR, driven primarily by rate increases which favorably impact property-level house profits, the growth in the number of rooms and the recognition in 2005 of $14 million of incentive
fees that were calculated based on prior period earnings but not earned and due until 2005. The increase in owned, leased, and other revenue net of direct expenses is primarily attributable to properties acquired in 2005, all of which we expect to
sell in 2006, including the CTF properties.

Further impacting
segment results, gains and other income was $5 million higher than the prior year, while equity results increased by $29 million versus the prior year. The increase in gains and other income is primarily attributable to the following items: $9
million of higher gains in 2005 associated with the sale or repayment before maturity of loans receivable associated with several properties; $11 million of increased income in 2005 associated with cost method investments, partially offset by the
$13 million gain in 2004 associated with the sale of our interest in the Two Flags Joint Venture. The increase in equity results is primarily attributable to several joint ventures which had significant asset sales in 2005 generating gains, and to a
lesser extent, the favorable variance is also a result of a stronger demand environment and the mix of investments. The increase in income associated with cost method investments is primarily related to one new investment in 2005.

Somewhat offsetting the net favorable variances noted above were $151 million of higher general and administrative costs. As noted in the preceding
Operating Income discussion, during 2005 we recorded a $94 million pre-tax charge, primarily due to the non-cash write-off of deferred contract acquisition costs associated with the termination of CTF management agreements, and we
incurred pre-tax expenses of $18 million related to our bedding incentive program, both of which impacted our general and administrative expenses. In 2005, we also recorded pre-tax performance termination cure payments of $15 million associated with
two properties and $6 million of pre-tax charges associated with two guarantees, which impacted general and administrative expenses. In addition, in 2005 there were increased overhead costs associated with unit growth and development.

Financial results for our international operations were strong across most
regions. Increased demand in 2005 generated an 11.0 percent RevPAR increase for comparable company-operated hotels over 2004. Additionally, occupancy increased 1.5 percentage points, while average daily rates increased to $137.62. In 2005 we
experienced strong demand particularly in China, Mexico, the Caribbean and Egypt. The European markets generally continue to remain less robust.

During 2004, across our Full-Service Lodging segment, we added 33 hotels (10,212 rooms), and deflagged six hotels (2,860 rooms) excluding Ramada
International. As a result of the sale of the Ramada International Hotels & Resorts franchised brand, 210 properties (28,081 rooms) exited our system in 2004. The ongoing impact of this sale has not been material to the Company.

The 2004 segment results reflect an $85 million increase in base
management, incentive management and franchise fees, partially offset by $46 million of increased administrative costs, including costs related to unit growth and development, and the receipt in 2003 of $36 million of insurance proceeds. The
increase in fees is largely due to stronger RevPAR, driven by occupancy and rate increases, and the growth in the number of rooms.

Gains were up $7 million, primarily due to the exercise by Cendant of its option to redeem our interest in the Two Flags joint venture, which generated a
gain of $13 million, and a note receivable, which was repaid, generating a gain of $5 million. Joint venture results were up $2 million compared to the prior year. For 2003, our equity earnings included $24 million, attributable to our interest in
the Two Flags joint venture, while our equity in earnings for 2004 reflects only a $6 million impact due to the redemption of our interest. The improved business environment contributed to the improvement in joint venture results for 2004,
offsetting the decline attributable to the Two Flags joint venture.

RevPAR for Full-Service Lodging comparable company-operated North American hotels increased 8.4 percent to $109.62. Occupancy for these hotels increased to 71.3 percent, while average daily rates increased 3.6 percent to $153.66.

Demand associated with our international operations was strong
across most regions, generating a 16.6 percent RevPAR increase for comparable company-operated hotels. Occupancy increased 6.6 percentage points, while average daily rates increased to $129.35. Financial results increased 37 percent to $140 million,
due to stronger demand, particularly in China, Hong Kong, Brazil and Egypt. The European markets generally remain challenging as the economies have been slow to rebound.

The increase in revenues for 2005 over the prior year reflects stronger RevPAR, driven by occupancy and rate increases and the growth in the number of
rooms across our select-service brands. The $69 million increase in segment results versus the prior year reflects a $35 million increase in base management, incentive management and franchise fees, $4 million of higher owned, leased and other
revenue net of direct expenses, $12 million of higher gains and other income, a $12 million increase in equity results, and $6 million of lower general, administrative and other expenses. General, administrative and other expenses in 2005 included
$8 million of higher pre-tax expenses associated with our bedding incentive program. In 2004, as discussed below, we wrote off deferred contract acquisition costs, impacting general and administrative expenses, totaling $13 million. The 2005
increase in gains and other income is primarily a result of the 2005 sale of a portfolio of land underlying 75 Courtyard hotels, which generated pre-tax gains of $17 million, a $10 million gain in 2005 associated with the repayment, before maturity,
to us of the loan we made to the Courtyard joint venture and increased income of $3 million in 2005 associated with cost method joint ventures, partially offset by $20 million of gains in 2004 primarily associated with land sales. Stronger
performance at our reinvented Courtyard properties, versus non-reinvented properties, is also contributing to the increase in revenue and segment results from the prior year. For additional information related to the Courtyard joint venture, see the
Courtyard Joint Venture caption in Liquidity and Capital Resources later in this report.

The increase in the Select-Service Lodging segment revenues for 2004 over the
prior year reflects stronger RevPAR, driven by occupancy and rate increases, and the growth in the number of rooms across our select-service brands. Base management, incentive management and franchise fees increased $31 million, and gains were $19
million higher than the prior year, reflecting land sales during the year as well as recognition of deferred gains associated with properties we previously owned. Joint venture results increased by $5 million as a result of the strong business
environment. These increases were partially offset by an increase in administrative costs of $13 million. Most of the increase in administrative costs is associated with a transaction related to our Courtyard joint venture (discussed more fully
later in this report in Liquidity and Capital Resources under the heading Courtyard Joint Venture). As the termination of the existing management agreements associated with the Courtyard joint venture was probable in 2004, we
wrote off our deferred contract acquisition costs related to the existing contracts, resulting in a charge of $13 million.

Across the Extended-Stay Lodging segment, we added 37
hotels (4,293 rooms) in 2005.

Our base and incentive
management fees in 2005 were $12 million higher than the prior year and our franchise fees, principally associated with our Residence Inn brand, also increased $12 million. The increase in management and franchise fees is largely due to higher
RevPAR driven by increased demand and to the growth in the number of rooms. Owned, leased, corporate housing and other revenue, net of direct expenses declined $12 million compared to a year ago primarily as a result of our ExecuStay brands
shift toward franchising. Gains and other income was $11 million lower than last year, primarily reflecting gains on sales of real estate in 2004 versus no gains in 2005. General and administrative costs were slightly higher, primarily reflecting
2005 pre-tax expenses of $4 million associated with our bedding incentive program and a $6 million charge in 2005 associated with the settlement of litigation, almost entirely offset by lower general, administrative and other expenses, including
lower costs associated with ExecuStays shift toward franchising.

RevPAR for Select-Service and Extended-Stay Lodging comparable company-operated North American hotels increased 9.4 percent to $76.49. Occupancy for these hotels increased slightly to 73.8 percent from 72.6 percent in 2004, while average
daily rates increased 8.7 percent to $103.70.

The decline in our Extended-Stay Lodging segment revenue in 2004 is primarily attributable to the shift in the ExecuStay business from management to franchising. We entered into more than 20 new franchise markets in 2004, and only five
managed markets remain at the end of 2004. Our base management fees increased $4 million, and our incentive management fees were essentially flat with last year, while our franchise fees, principally associated with our Residence Inn brand,
increased $9 million. The increase in franchise fees is largely due to the growth in the number of rooms and an increase in RevPAR. In addition, gains of $10 million in 2004 were favorable to the prior year by $4 million. ExecuStay experienced
improved results compared to the prior year, resulting from increased occupancy, primarily in the New York market, coupled with lower operating costs associated with the shift in business toward franchising. The $2 million increase in general and
administrative costs associated with supporting the segments hotel brands was more than offset by the $6 million decline in ExecuStays general and administrative costs associated with ExecuStays shift toward franchising.

RevPAR for Select-Service and Extended-Stay Lodging comparable company-operated North American hotels
increased 9.1 percent to $68.66. Occupancy for these hotels increased to 72.6 percent from 70.0 percent in 2003, while average daily rates increased 4.4 percent to $94.52.

Timeshare includes our Marriott Vacation Club International, The Ritz-Carlton Club, Grand Residences byMarriott and Horizons by Marriott Vacation Club brands.

Annual Change

($ in millions)

2005

2004

2003

2005/2004

2004/2003

Revenues

$

1,721

$

1,502

$

1,279

15%

17%

Segment results

$

271

$

203

$

149

33%

36%

2005 Compared to 2004

Timeshare revenues of $1,721 million and $1,502 million,
in 2005 and 2004, respectively, include interval, fractional, and whole ownership sales, base management fees, resort rental fees and cost reimbursements. Timeshare contract sales, including sales made by our timeshare joint venture projects, which
represent sales of timeshare interval, fractional, and whole ownership products before adjustment for percentage of completion accounting, were flat as compared to last year, reflecting limited available inventory at several projects in 2005 which
are approaching sell-out status versus higher contract sales at those projects in the prior year. The favorable segment results compared with 2004 reflect a $51 million increase in timeshare interval, fractional, and whole ownership sales and
services revenue net of direct expenses, primarily reflecting higher financially reportable development revenue under the percentage of completion accounting, a higher development margin, primarily resulting from the mix of units sold, and higher
financing income reflecting a higher average notes receivable portfolio balance in 2005. In addition, compared with 2004, base fees increased $4 million, gains increased $6 million, equity earnings increased $8 million, and general and
administrative expenses were flat. Improved equity results primarily reflect start-up losses in 2004 versus earnings in 2005 associated with one joint venture, and the increase in gains is attributable to note sales which generated gains of $69
million in 2005 compared to $64 million in 2004. In 2005 we also decided to cease development of one land parcel, and we recorded a $7 million charge in conjunction with the write-off of the previously capitalized costs which impacted our timeshare
direct expenses.

2004 Compared to 2003

Timeshare segment revenues totaled $1,502 million and $1,279 million, in
2004 and 2003, respectively. Including our three joint ventures, contract sales increased 31 percent, primarily due to strong demand in South Carolina, Florida, Hawaii, California, St. Thomas, U.S. Virgin Islands and Aruba. The favorable segment
results reflect a 9 percent increase in timeshare interval, fractional, and whole ownership sales services revenue, higher margins, primarily resulting from lower marketing and selling costs, and the mix of units sold, partially offset by $24
million of higher administrative expenses. Our note sales gain of $64 million was flat compared to the prior year. In addition, we adjusted the discount rate used in determining the fair value of our residual interests due to current trends in
interest rates and recorded a $7 million charge in 2004. Reported revenue growth trailed contract sales growth because of a higher proportion of sales in joint venture projects and projects with lower average construction completion.

Synthetic Fuel

See the Synthetic Fuel caption in the Part I, Item 1 Business section earlier in this report
for information related to our synthetic fuel investment and how we have accounted for that investment.

The tables below detail the impact of our Synthetic Fuel segment on our continuing operations for 2005, 2004 and 2003. Our management evaluates the
figures presented in the Before Syn. Fuel columns because management expects the Synthetic Fuel segment will no longer have a material impact on our business after the Internal Revenue Code Section 29 synthetic fuel tax credits
expire at the end of 2007 and because the presentation reflects the results of our core Lodging operations. Management also believes that these presentations facilitate the comparison of our results with the results of other lodging companies.
However, the figures presented in the Before Syn. Fuel columns are non-GAAP financial measures, may be calculated and/or presented differently than presentations of other companies, and are not alternatives to operating income, total tax
(provision) benefit, income from continuing operations, or any other operating measure prescribed by U.S. generally accepted accounting principles.

For 2005, the synthetic fuel operation generated revenue of $421 million versus revenue of $321 million for the prior year, primarily due to the
consolidation of our synthetic fuel operations from the start of the 2004 second quarter, which resulted in the recognition of revenue for the entire 2005 year compared with only three quarters in 2004, as we accounted for the synthetic fuel
operations using the equity method of accounting in the 2004 first quarter.

The $18 million increase in synthetic fuel income from continuing operations to $125 million from $107 million in 2004 is primarily due to our increased proportion of tax credits through May 31, 2005, associated
with the SAFE II facilities that were then under IRS review and higher gains and other income, partially offset by our decreased proportion of tax credits through March 31, 2005, associated with the SAFE I facility that was not under IRS
review. In addition, in 2005 production was slightly lower and raw materials prices were higher than in 2004. Gains and other income represents net earn-out payments received. Minority interest increased from a benefit of $40 million in 2004 to a
benefit of $47 million in 2005, primarily as a result of the change in the method of accounting for our synthetic fuel operations. For 2004, minority interest reflects our partners share of the synthetic fuel losses from March 26, 2004
(when we began consolidating the ventures due to the adoption of FIN 46(R)) through year-end. For 2005, minority interest represents our partners share of the synthetic fuel losses for the entire year.

The table below details the impact of our Synthetic Fuel segment on our
continuing operations for 2005 and 2004.

For 2004, the synthetic fuel operation generated revenue of $321 million versus revenue of $302 million for the prior year, primarily due to higher
production.

The $11 million increase in synthetic fuel income
from continuing operations to $107 million in 2004 from $96 million in the prior year is primarily due to slightly higher production in 2004. Gains and other income of $28 million represents net earn-out payments received. In addition, equity losses
of $28 million include net earn-out payments made of $6 million. Minority interest increased from an expense of $55 million in 2003 to a benefit of $40 million in 2004, primarily as a result of the change in the ownership structure of the synthetic
fuel joint ventures following our sale of 50 percent of our interest in the joint ventures. Minority interest for 2003 reflected our partners share of the synthetic fuel operating losses and its share of the associated tax benefit, along with
its share of the tax credits from the June 21, 2003, sale date through the put options expiration date. For 2004, minority interest reflected our partners share of the synthetic fuel losses from March 26, 2004, when we began
consolidating the ventures due to the adoption of FIN 46(R), through year-end.

The table below details the impact of our Synthetic Fuel segment on our continuing operations for 2004 and 2003.

2004

2003

($ in millions)

AsReported

Syn. FuelImpact

BeforeSyn. FuelImpact

AsReported

Syn. FuelImpact

BeforeSyn. FuelImpact

Operating income (loss)

$

477

$

(98

)

$

575

$

377

$

(104

)

$

481

Gains and other income

164

28

136

106



106

Interest income, provision for loan losses and interest expense

55



55

12



12

Equity in (losses) earnings

(42

)

(28

)

(14

)

(7

)

10

(17

)

Income (loss) before income taxes and minority interest

654

(98

)

752

488

(94

)

582

Tax (provision) benefit

(244

)

21

(265

)

(168

)

34

(202

)

Tax credits

144

144



211

211



Total tax (provision) benefit

(100

)

165

(265

)

43

245

(202

)

Income from continuing operations before minority interest

554

67

487

531

151

380

Minority interest

40

40



(55

)

(55

)



Income from continuing operations

$

594

$

107

$

487

$

476

$

96

$

380

Impact of Future Adoption of
Accounting Standards

Statement of Position 04-2, Accounting for
Real Estate Time-sharing Transactions

In December
2004, the American Institute of Certified Public Accountants issued Statement of Position 04-2, Accounting for Real Estate Time-Sharing Transactions, (the SOP) and the Financial Accounting Standards Board (FASB)
amended FAS No. 66, Accounting for Sales of Real Estate, and FAS No. 67 Accounting for Costs and Initial Rental Operations of Real Estate Projects, to exclude accounting for real estate time-sharing transactions
from these statements. The SOP is effective for fiscal years beginning after June 15, 2005.

Under the SOP, we will charge the majority of the costs we incur to sell timeshares to expense when incurred. We will also record an estimate of expected
uncollectibility on notes receivable that we receive from timeshare purchasers as a reduction of revenue at the time that we recognize profit on a timeshare sale. We will also account for rental and other operations during holding periods as
incidental operations, which require us to record any excess profits as a reduction of inventory costs.

We estimate that the initial adoption of the SOP in our 2006 first quarter, which we will report as a cumulative effect of a change in accounting
principle in our fiscal year 2006 financial statements, will result in a one-time non-cash after-tax charge of approximately $110 million to $115 million, consisting primarily of the write-off of deferred selling costs and establishing the required
reserves on notes. We estimate the ongoing impact of the adoption in subsequent periods will be immaterial.

In December 2004, the FASB issued FAS No. 123 (revised 2004),
Share-Based Payment (FAS No. 123R), which is a revision of FAS No. 123, Accounting for Stock-Based Compensation. FAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends FAS No. 95, Statement of Cash Flows. We will adopt FAS No. 123R at the beginning of our 2006 fiscal year. We estimate the adoption of FAS No. 123R, using the modified prospective method, will
result in incremental pre-tax expense in fiscal year 2006 of approximately $44 million, based on our current share-based payment compensation plans, assumptions reflecting currently available information and recent interpretations related to
accounting for share-based awards granted to eligible retirees.

DISCONTINUED OPERATIONS

Senior Living Services

We completed the sale of our senior living management
business along with a parcel of land to Sunrise Senior Living, Inc. and the sale of nine senior living communities to CNL Retirement Properties, Inc., in 2003 for $266 million. We recorded an after-tax gain on disposal of $19 million and after-tax
income from operations of $7 million in 2003 associated with our discontinued senior living services business.

Distribution Services

In 2005 and 2004, we had income, net of tax of $1 million and $2 million, respectively, associated with the distribution services business we exited in 2002.

We are party to a multicurrency revolving credit agreement that provides for aggregate borrowings of $2.0 billion expiring in 2010, which supports our
commercial paper program and letters of credit. This facility became effective on June 6, 2005, replacing two multicurrency credit agreements in the same aggregate amount which would otherwise have expired in 2006. As with the facilities it
replaced, borrowings under this new facility bear interest at LIBOR plus a spread based on our public debt rating. With the exception of the 2010 expiration date, the material terms of the new credit agreement are the same as those of the replaced
agreements. We classify commercial paper as long-term debt based on our ability and intent to refinance it on a long-term basis.

At year-end 2005 we had no loans and $93 million of letters of credit outstanding under this facility. We do not anticipate that fluctuations in the
availability of the commercial paper market will affect our liquidity because of the flexibility provided by our credit facility. At year-end 2005 our available borrowing capacity amounted to $1.611 billion and reflected borrowing capacity at $2.0
billion under the credit facility plus our cash balance of $203 million less the letters of credit outstanding under the facility of $93 million and a $499 million reserve for outstanding commercial paper supported by the facility. We consider these
resources, together with cash we expect to generate from operations, adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, meet debt service and fulfill other cash requirements. We periodically
evaluate opportunities to sell additional debt or equity securities, obtain credit facilities from lenders, or repurchase, refinance, or otherwise restructure our long-term debt for strategic reasons or to further strengthen our financial position.

In the fourth quarter of 2005 we began issuing short-term
commercial paper in Europe in addition to our long-standing commercial paper program in the United States. Our U.S. and European commercial paper issuances are subject to the availability of the commercial paper market, as we have no commitments
from buyers to purchase our commercial paper. We reserve unused capacity under our credit facility to repay outstanding commercial paper borrowings in the event that the commercial paper market is not available to us for any reason when outstanding
borrowings mature.

We monitor the status of the capital
markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans. We expect that part of our financing and liquidity needs will continue to be met through commercial
paper borrowings and access to long-term committed credit facilities. If conditions in the lodging industry deteriorate, or if disruptions in the commercial paper market take place as they did in the immediate aftermath of September 11, 2001,
we may be unable to place some or all of our commercial paper on a temporary or extended basis, and may have to rely more on borrowings under the credit facility, which may carry a higher cost than commercial paper.

Cash from Operations

Cash from operations, depreciation expense and amortization expense for the last three fiscal years are as follows:

While our timeshare business generates strong operating cash flow, year-to-year cash flow varies based on
the timing of both cash outlays for the acquisition and development of new resorts and cash received from purchaser financing. We include timeshare interval, fractional, and whole ownership sales we finance in cash from operations when we collect
cash payments or the notes are sold for cash. The following table shows the net operating activity from our timeshare business (which does not include the portion of income from continuing operations from our timeshare business):

($ in millions)

2005

2004

2003

Timeshare development, less the cost of sales

$

40

$

93

$

(94

)

New timeshare mortgages, net of collections

(441

)

(459

)

(247

)

Loan repurchases

(23

)

(18

)

(19

)

Note sale gains

(69

)

(64

)

(64

)

Note sale proceeds

399

312

231

Financially reportable sales (in excess of) less than closed sales

(57

)

129

(4

)

Collection on retained interests in notes sold and servicing fees

90

94

50

Other cash inflows

55

26

36

Net cash (outflows) inflows from timeshare activity

$

(6

)

$

113

$

(111

)

Our ability to sell
timeshare notes depends on the continued ability of the capital markets to provide financing to the special purpose entities that buy the notes. We might have increased difficulty or be unable to consummate such sales if the underlying quality of
the notes receivable we originate were to deteriorate, although we do not expect such a deterioration. Loans to timeshare owners, including a current portion of $33 million, totaled $344 million at year-end 2005. Loans to timeshare owners, including
a current portion of $26 million, totaled $315 million at year-end 2004.

Our ratio of current assets to current liabilities was roughly one to one at year-end 2005 and 0.8 to one at year-end 2004. Each of our businesses minimizes working capital through cash management, strict
credit-granting policies, aggressive collection efforts and high inventory turnover. We also have significant borrowing capacity under our revolving credit facility should we need additional working capital.

Our ratios of earnings to fixed charges for the last five fiscal years, the
calculations of which are detailed in Exhibit 12 to this report, are as follows:

Fiscal Years

2005

2004

2003

2002

2001

4.3

x

4.7

x

3.6

x

3.2

x

2.4

x

Investing Activities Cash Flows

Capital Expenditures and Other Investments.
Capital expenditures of $780 million in 2005, $181 million in 2004 and $210 million in 2003 primarily included expenditures related to the development and construction of new hotels and acquisitions of hotel properties, as well as improvements
to existing properties and systems initiatives. Included in the 2005 capital expenditures are the properties purchased from CTF Holdings Ltd. as described below. Over time, we have sold lodging properties under development, subject to long-term
management agreements. The ability of third-party purchasers to raise the necessary debt and equity capital depends in part on the perceived risks inherent in the lodging industry and other constraints inherent in the capital markets as a whole.
Although we expect to continue to consummate such real estate sales, if we were unable to do so, our liquidity could decrease and we could have increased exposure to the operating risks of owning real estate. We monitor the status of the capital
markets and regularly evaluate the effect that changes in capital market conditions may have on our ability to execute our announced growth plans. We also expect to continue to make other investments in connection with adding units to our lodging
business. These investments include loans and minority equity investments.

Fluctuations in the values of hotel real estate generally have little impact on the overall results of our Lodging segments because (1) we own less than 1 percent of the total number of hotels that we operate or
franchise; (2) management and franchise fees are generally based upon hotel revenues and profits versus current hotel property values; and (3) our management agreements generally do not terminate upon hotel sale.

During the 2005 third quarter, we purchased from CTF Holdings Ltd. and
certain of its affiliates (collectively CTF) 13 properties (in each case through a purchase of real estate, a purchase of the entity that owned the hotel, or an assignment of CTFs leasehold rights) and certain joint venture
interests from CTF for an aggregate price of $381 million. Prior to the sale, all of the properties were operated by us or our subsidiaries.

We plan to sell eight of the properties we have purchased to date to third-party owners, and the balances
related to these properties are classified within the Assets held for sale and Liabilities of assets held for sale captions in our Consolidated Balance Sheet. One operating lease has terminated. We operate the four remaining
properties under leases, three of which expire by 2012. Under the purchase and sale agreement we signed with CTF in the second quarter of 2005, we remain obligated to purchase two additional properties for $17 million, the acquisition of which was
postponed pending receipt of certain third-party consents.

On
the closing date we and CTF also modified management agreements on 29 other CTF-leased hotels, 28 located in Europe and one located in the United States. We became secondarily liable for annual rent payments for certain of these hotels when we
acquired the Renaissance Hotel Group N.V. in 1997. We continue to manage 16 of these hotels under new long-term management agreements; however, due to certain provisions in the management agreements, we account for these contracts as operating
leases. CTF placed approximately $89 million in trust accounts to cover possible shortfalls in cash flow necessary to meet rent payments under these leases. In turn, we released CTF from their guarantees in connection with these leases.
Approximately $79 million remained in these trust accounts at the end of 2005. Our financial statements reflect us as lessee on these hotels. Minimum lease payments relating to these leases are as follows: $32 million in 2006; $33 million in 2007;
$33 million in 2008; $33 million in 2009; $33 million in 2010 and $231 million thereafter, for a total of $395 million.

For the remaining 13 European leased hotels, CTF may terminate management agreements with us if and when CTF obtains releases from landlords of our
back-up guarantees. Pending completion of the CTF-landlord agreements, we continue to manage these hotels under modified management agreements and remain secondarily liable under certain of these leases. CTF has made available 35 million in
cash collateral in the event that we are required to fund under such guarantees. As CTF obtains releases from the landlords and these hotels exit the system, our contingent liability exposure of approximately $217 million will decline.

We also continue to manage three hotels in the United Kingdom under
amended management agreements with CTF and continue to manage 14 properties in Asia on behalf of New World Development Company Limited and its affiliates. CTFs principals are officers, directors and stockholders of New World Development
Company Limited. At the closing date, the owners of the United Kingdom and Asian hotels agreed to invest $17 million to renovate those properties.

We and CTF also exchanged legal releases effective as of the closing date, and litigation and arbitration that was outstanding between the two companies
and their affiliates was dismissed.

Simultaneously with the
closing on the foregoing transactions, CTF also sold five properties and one minority joint venture interest to Sunstone Hotel Investors, Inc. (Sunstone) for $419 million, eight properties to Walton Street Capital, L.L.C. (Walton
Street) for $578 million, and two properties to Tarsadia Hotels (Tarsadia) for $29 million, in each case as substitute purchasers under our purchase and sale agreement with CTF. Prior to consummation of the sales, we also operated
all of these properties. At closing, Walton Street and Sunstone entered into new long-term management agreements with us and agreed to invest a combined $68 million to further upgrade the 13 properties they acquired. The two properties purchased by
Tarsadia are being operated under short-term management and franchise agreements.

When we signed the purchase and sale agreement for the foregoing transactions in the 2005 second quarter, we recorded a $94 million pre-tax charge primarily due to the non-cash write-off of deferred contract
acquisition costs associated with the termination of the existing management agreements for properties involved in these transactions. As described above, we entered into new long-term management agreements with CTF, Walton Street and Sunstone at
the closing of the transactions, and we expect to sell most of the properties we acquired subject to long-term management agreements.

In 2005, we also purchased two full-service properties for aggregate cash consideration of $146 million.

Dispositions. Property and asset sales generated cash proceeds of $298
million in 2005, $402 million in 2004 and $494 million in 2003. Property and asset sales in 2005 primarily consisted of land parcel sales, including those as described below, and we also sold two minority interests in joint ventures.

Late in 2005 we contributed land underlying an additional nine Courtyard
hotels, worth approximately $40 million, to Courtyard by Marriott Land Joint Venture limited partnership (CBM Land JV), a joint venture the majority of which is owned by Sarofim Realty Advisors on behalf of an institutional investor,
thereby obtaining a 23 percent equity stake in CBM Land JV. At the same time we completed the sale of a portfolio of land underlying

75 Courtyard hotels for approximately $246 million in cash to CBM Land JV. We recognized a pre-tax gain of $17 million in
2005, we deferred recognition of $5 million of pre-tax gain due to our minority interest in the joint venture, and we also deferred recognition of $40 million of pre-tax gain due to contingencies in the transaction documents. As those contingencies
expire in subsequent years, we will recognize additional gains.

Loan Activity. We have made loans to owners of hotels that we operate or franchise, typically to facilitate the development of a new hotel. Over time we expect these owners to repay the loans in accordance with the loan agreements,
or earlier as the hotels mature and capital markets permit. Loan collections and sales, net of advances during 2005, amounted to $650 million. Lodging senior loans outstanding totaled $59 million (which included a current portion of $2 million) at
year-end 2005 and $75 million (which included a current portion of $17 million) at year-end 2004. Lodging mezzanine and other loans totaled $274 million (which included a current portion of $13 million) at year-end 2005 and $867 million (which
included a current portion of $25 million) at year-end 2004. In 2005 our notes receivable balance associated with Lodging senior loans and Lodging mezzanine and other loans, declined by $609 million and primarily reflects the repayment of several
loans including the loan associated with our Courtyard joint venture (described more fully below under the Courtyard Joint Venture caption). Unfunded commitments aggregating $11 million were outstanding at year-end 2005, of which we
expect to fund $5 million in 2006.

Investment in Leveraged
Lease. At year-end 2005, we have a $23 million gross investment in an aircraft leveraged lease with Delta Air Lines, Inc., which we acquired in 1994. The gross investment is comprised of rentals receivable and the residual value of the aircraft
offset by unearned income. On September 14, 2005, Delta filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code and informed us that it wishes to restructure the lease. As a result, we believe our investment is impaired,
and have recorded a pre-tax charge of approximately $17 million in 2005, leaving a net exposure of $6 million.

Equity and Cost Method Investments

Cash outflows of $231 million in 2005 associated with equity and cost method investments primarily reflects our establishment in the 2005 second quarter of a 50/50 joint venture with Whitbread PLC
(Whitbread) to acquire Whitbreads portfolio of 46 franchised Marriott and Renaissance hotels totaling over 8,000 rooms, and for us to take over management of the entire portfolio of hotels upon the transfer of the hotels to the new
joint venture. Whitbread sold its interest in the 46 hotels to the joint venture for approximately £995 million. Whitbread received approximately £710 million in cash (including £620 million from senior debt proceeds) and 50
percent of the preferred and ordinary shares of the joint venture and non-voting deferred consideration shares valued at £285 million. We contributed approximately £90 million ($171 million) in the second quarter of 2005 for the
remaining 50 percent of the preferred and ordinary shares of the joint venture. The joint venture is currently discussing the sale of the hotels with a potential purchaser. As the joint venture sells the hotels, our interest in the joint venture
will be redeemed. The joint venture expects to sell the hotels in early 2006 subject to long-term management agreements with us.

In 2005 we also contributed cash of $35 million and a note of $40 million for a $75 million 50 percent interest in a joint venture developing a mixed-use
project, consisting of timeshare, fractional, and whole ownership products in Hawaii. We expect sales will begin in late 2006.

Cash from Financing Activities

Debt. Debt increased $412 million in 2005, from $1,325 million to $1,737 million at year-end 2005, due to the issuance of $348 million (book value)
of Series F Senior Notes (the Series F Notes), net commercial paper issuances of $499 million, and other debt increases of $69 million, partially offset by repayment upon maturity of $200 million for the Series B Senior Notes, repayment
upon maturity of $275 million for the Series D Senior Notes and the $29 million (book value) debt decrease associated with the Series C and Series E debt exchange described below. Debt decreased $130 million in 2004, from $1,455 million to
$1,325 million, due to the repurchase of all of our remaining zero-coupon convertible senior Liquid Yield Option Notes due 2021, also known as LYONs totaling $62 million, the maturity of $46 million of senior notes and other debt reductions of $22
million.

In June 2005, we sold $350 million aggregate
principal amount of 4.625 percent Series F Notes. We received net proceeds of approximately $346 million from this offering, after deducting a discount and underwriting fees, and we used these proceeds to repay commercial paper borrowings and for
general corporate purposes. Interest on the Series F Notes is payable on June 15 and December 15 of each year, which commenced on December 15, 2005. The Series F Notes will mature on June 15, 2012, and we may redeem the notes, in
whole or in part, at any time or from time to time under the terms provided in the Form of 4.625% Series F Note due 2012.

In November 2005, we offered to holders of our outstanding 7 percent Series E Notes due 2008 and to
holders of our outstanding 7.875 percent Series C Notes due 2009 (collectively Old Notes) an opportunity to exchange into new 5.81 percent Series G Notes and issued new Series G Notes in the aggregate total of $427 million to replace Old
Notes that had been validly tendered for exchange and not withdrawn, comprised of $203 million of the Series E Notes and $224 million of the Series C Notes. In addition, we paid an exchange price of $31 million ($9 million for the Series E Notes and
$22 million for the Series C Notes) which was equal to the sum of the present values of the remaining scheduled payments of interest and principal on the Old Notes. Furthermore, holders who had Old Notes accepted for exchange received a cash payment
of $7 million representing accrued and unpaid interest to, but not including, the settlement date.

The exchanges are not considered to be extinguishments, and accordingly, the exchange price payment, along with the existing unamortized discounts
associated with the Series C Notes and Series E Notes, are being amortized as an adjustment of interest expense over the remaining term of the replacement debt instrument using the interest method. All other third-party costs related to the exchange
were expensed as incurred.

Interest on the Series G Notes is
payable on May 10 and November 10 of each year, beginning on May 10, 2006. The Series G Notes mature on November 10, 2015, and we may redeem the notes, in whole or in part, at any time or from time to time under the terms
provided in the Form of 5.81% Series G Note due 2015.

Our
Series C Notes, Series E Notes, Series F Notes, and Series G Notes were all issued under an indenture with JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan Bank), as trustee, dated November 16, 1998.

Our financial objectives include diversifying our financing sources,
optimizing the mix and maturity of our long-term debt and reducing our working capital. At year-end 2005, our long-term debt had an average interest rate of 5.4 percent and an average maturity of approximately 6.3 years. The ratio of fixed-rate
long-term debt to total long-term debt was 0.7 to one at year-end 2005. At the end of 2005, we had long-term public debt ratings of BBB+ from Standard and Poors and Baa2 from Moodys.

On December 8, 2005, we filed a universal shelf registration
statement with the Securities and Exchange Commission covering an indeterminate amount of future offerings of debt securities, common stock or preferred stock, either separately or represented by warrants, depositary shares, rights or purchase
contracts.

Share Repurchases. We purchased
25.7 million shares of our Class A Common Stock in 2005 at an average price of $64.23 per share, 14.0 million shares of our Class A Common Stock in 2004 at an average price of $46.65 per share, and 10.5 million shares of our
Class A Common Stock in 2003 at an average price of $36.07 per share. As of year-end 2005, 17.9 million shares remained available for repurchase under authorizations from our Board of Directors. See Part I, Item 5 of this Form 10-K
for additional information on the Companys share repurchases.

Dividends. In May 2005, our Board of Directors increased the quarterly cash dividend by 24 percent to $0.105 per share.

Courtyard Joint Venture

During the 2005 second quarter, Sarofim Realty Advisors (Sarofim), on behalf of an institutional investor, completed the acquisition of a 75
percent interest in the Courtyard joint venture, and we signed new long-term management agreements with the joint venture. The transaction has accelerated the pace of reinventions and upgrades at the joint ventures 120 hotels. The termination
of the previous management agreements was probable at year-end 2004. Accordingly, in 2004 we wrote off our deferred contract acquisition costs relating to the management agreements which existed at that time, resulting in a charge of $13 million.

Prior to Sarofims acquisition, we and Host Marriott
owned equal shares in the 120-property joint venture. With the addition of the new equity, our interest in the joint venture declined to approximately 21 percent and Host Marriotts interest declined to less than 4 percent. As part of the
completed transaction, our mezzanine loan to the joint venture (including capitalized interest) totaling approximately $269 million was repaid.

The following table summarizes our contractual obligations as of year-end
2005:

Payments Due by Period

Contractual Obligations

($ in millions)

Total

Less Than1 Year

1-3 Years

3-5 Years

After 5 Years

Debt(1)

$

2,281

$

127

$

255

$

222

$

1,677

Capital lease obligations(1)

16

1

2

2

11

Operating leases where we are the primary obligor:

Recourse

1,051

108

224

203

516

Non-recourse

432

16

34

25

357

Operating leases where we are secondarily liable

395

32

66

66

231

Other long-term liabilities

49



7



42

Total contractual obligations

$

4,224

$

284

$

588

$

518

$

2,834

(1) Includes principal as well as interest payments.

The following table summarizes our commitments as of year-end 2005:

Amount of Commitment Expiration Per Period

Other Commercial Commitments

($ in millions)

Total AmountsCommitted

Less Than1 Year

1-3 Years

3-5 Years

After 5 Years

Total guarantees where we are the primary obligor

$

414

$

114

$

63

$

49

$

188

Total guarantees where we are secondarily liable

537

59

111

105

262

Total other commercial commitments

$

951

$

173

$

174

$

154

$

450

Our guarantees listed
above include $69 million for guarantees that will not be in effect until the underlying hotels are open and we begin to manage the properties. Our guarantee fundings to lenders and hotel owners are generally recoverable as loans and are generally
repayable to us out of future hotel cash flows and/or proceeds from the sale of hotels.

The guarantees above include $320 million related to Senior Living Services lease obligations and lifecare bonds for which we are secondarily liable. Sunrise is the primary obligor of the leases and a portion of the
lifecare bonds, and CNL is the primary obligor of the remainder of the lifecare bonds. Prior to the sale of the Senior Living Services business at the end of the first quarter of 2003, these pre-existing guarantees were guarantees by the Company of
obligations of consolidated Senior Living Services subsidiaries. Sunrise and CNL have indemnified us for any guarantee fundings we may be called on to make in connection with these lease obligations and lifecare bonds. We do not expect to fund under
these guarantees.

The guarantees above also include
lease obligations for which we became secondarily liable when we acquired the Renaissance Hotel Group N.V. in 1997, consisting of annual rent payments of approximately $20 million and total remaining rent payments through the initial term plus
available extensions of approximately $217 million. We are also secondarily obligated for real estate taxes and other charges associated with the leases. Third parties have severally indemnified us for all payments we may be required to make in
connection with these obligations. Since we assumed these guarantees, we have not funded any amounts, and we do not expect to fund any amounts under these guarantees in the future.

In addition to the guarantees noted above, as of year-end 2005 our total unfunded loan commitments amounted to $11 million.
We expect to fund $5 million of those commitments within one year. We do not expect to fund the remaining $6 million of commitments, which expire as follows: $4 million within one year and $2 million after five years.

In 2005, we assigned to a third-party our previous commitment to fund up to $129 million to the Courtyard
joint venture for the primary purpose of funding the costs of renovating its properties in 2005 and 2006. Under the agreement, the third-party assumed the lending obligation to the venture. As of year-end 2005, we funded $1 million and the
third-party funded $22 million under this loan commitment. The commitment to fund is reduced to $27 million in September 2006 and expires in December 2009. In total, we expect that no more than $104 million of the $129 million commitment will be
funded, and other than the $1 million we already funded, we expect the third-party to provide all future fundings. We do not anticipate making further fundings ourselves, but remain secondarily obligated to the Courtyard joint venture if the
third-party fails to fund. At year-end 2005, that secondary obligation totaled $106 million and is not reflected in our outstanding loan commitments discussed in the preceding paragraph.

At year-end 2005 we also have commitments to invest $27 million of equity for minority interests in three partnerships,
which plan to purchase both full-service and select-service hotels in the United States and Canada.

At year-end 2005 we also had $93 million of letters of credit outstanding on our behalf, the majority of which related to our self-insurance programs.
Surety bonds issued on our behalf as of year-end 2005 totaled $546 million, the majority of which were requested by federal, state or local governments related to our timeshare and lodging operations and self-insurance programs.

As part of the normal course of business, we enter into purchase commitments
to manage the daily operating needs of our hotels. Since we are reimbursed by the hotel owners, these obligations have minimal impact on our net income and cash flow.

RELATED PARTY TRANSACTIONS

We have equity method investments in entities that own properties for which we provide management and/or franchise services and receive a fee. In
addition, in some cases we provide loans, preferred equity or guarantees to these entities.

The following tables present financial data resulting from transactions with these related parties:

The preparation of financial statements in accordance
with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if:



it requires assumptions to be made that were uncertain at the time the estimate was made; and



changes in the estimate or different estimates that could have been selected could have a material effect on our consolidated results of operations or financial condition.

Management has discussed the development and
selection of its critical accounting estimates with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the disclosure presented below relating to them.

Marriott Rewards

Marriott Rewards is our frequent guest loyalty program. Marriott Rewards members earn points based on their monetary spending at our lodging operations,
purchases of timeshare interval, fractional, and whole ownership products and, to a lesser degree, through participation in affiliated partners programs, such as those offered by airlines and credit card companies. Points, which we track on
members behalf, can be redeemed for stays at most of our lodging operations, airline tickets, airline frequent flyer program miles, rental cars and a variety of other awards; however, points cannot be redeemed for cash. We provide Marriott
Rewards as a marketing program to participating properties. We charge the cost of operating the program, including the estimated cost of award redemption, to properties based on members qualifying expenditures.

We defer revenue received from managed, franchised and Marriott-owned/leased
hotels and program partners equal to the fair value of our future redemption obligation. We determine the fair value of the future redemption obligation based on statistical formulas which project timing of future point redemption based on
historical levels, including an estimate of the breakage for points that will never be redeemed, and an estimate of the points that will eventually be redeemed. These judgmental factors determine the required liability for outstanding
points.

Our management and franchise agreements require that
we be reimbursed currently for the costs of operating the program, including marketing, promotion, communication with, and performing member services for the Marriott Rewards members. Due to the requirement that properties reimburse us for program
operating costs as incurred, we receive and recognize the balance of the revenue from properties in connection with the Marriott Rewards program at the time such costs are incurred and expensed. We recognize the component of revenue from program
partners that corresponds to program maintenance services over the expected life of the points awarded. Upon the redemption of points, we recognize as revenue the amounts previously deferred and recognize the corresponding expense relating to the
costs of the awards redeemed.

Valuation of Goodwill

We evaluate the fair value of goodwill to assess potential impairments on an
annual basis, or during the year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. We evaluate the fair value of goodwill at the reporting unit level and make that determination based
upon future cash flow projections which assume certain growth projections which may or may not occur. We record an impairment loss for goodwill when the carrying value of the intangible asset is less than its estimated fair value.

We measure loan impairment based on the present value of expected future cash flows discounted at the loans original effective interest rate or the
estimated fair value of the collateral. For impaired loans, we establish a specific impairment reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows, which assumes certain
growth projections which may or may not occur, or the estimated fair value of the collateral. We apply our loan impairment policy individually to all loans in the portfolio and do not aggregate loans for the purpose of applying such policy. Where we
determine that a loan is impaired, we recognize interest income on a cash basis. At year-end 2005 our recorded investment in impaired loans was $184 million. We have a $103 million allowance for credit losses, leaving $81 million of our investment
in impaired loans for which there is no related allowance for credit losses. At year-end 2004, our recorded investment in impaired loans was $181 million. During 2005 and 2004, our average investment in impaired loans totaled $182 million and $161
million, respectively.

Legal Contingencies

We are subject to various legal proceedings and claims, the outcomes of
which are subject to significant uncertainty. We record an accrual for loss contingencies when a loss is probable and the amount of the loss can be reasonably estimated. We review these accruals each reporting period and make revisions based on
changes in facts and circumstances.

Income Taxes

We record the current year amounts payable or refundable, as well as the
consequences of events that give rise to deferred tax assets and liabilities based on differences in how those events are treated for tax purposes. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in
certain cases, business plans and other expectations about future outcomes.

Changes in existing laws and rates, and their related interpretations, and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting
for deferred tax consequences represents managements best estimate of future events that can be appropriately reflected in the accounting estimates.

OTHER MATTERS

Inflation

Inflation
has been moderate in recent years and has not had a significant impact on our businesses.

We are exposed to market risk from changes in interest rates, foreign exchange rates, and equity prices. We manage our exposure to these risks by
monitoring available financing alternatives, through development and application of credit granting policies and by entering into derivative arrangements. We do not foresee any significant changes in either our exposure to fluctuations in interest
rates or foreign exchange rates or how such exposure is managed in the future.

We are exposed to interest rate risk on our floating-rate notes receivable, our residual interests retained in connection with the sale of Timeshare segment notes receivable and the fair value of our fixed-rate notes
receivable.

We are also subject to risk from changes in equity prices from our investments in common stock, which have a carrying value of $53 million at year-end 2005 and are accounted for as available-for-sale securities under
FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities.

We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and
foreign currency exchange rates. As a matter of policy, we do not use derivatives for trading or speculative purposes.

At year-end 2005 we were party to the following derivative instruments:



An interest rate swap agreement under which we receive a floating-rate of interest and pay a fixed-rate of interest. The swap modifies our interest rate exposure by effectively
converting a note receivable with a fixed rate to a floating rate. The aggregate notional amount of the swap is $92 million and it matures in 2010.



Six outstanding interest rate swap agreements to manage interest rate risk associated with the residual interests we retain in conjunction with our Timeshare segment note sales.
Historically, we were required by purchasers and/or rating agencies to utilize interest rate swaps to protect the excess spread within our sold note pools. The aggregate notional amount of the swaps is $380 million, and they expire through 2022.



Forward foreign exchange and option contracts to hedge the potential volatility of earnings and cash flows associated with variations in foreign exchange rates during 2005. The
aggregate dollar equivalent of the notional amounts of the contracts is approximately $27 million, and they expire throughout 2006.



Forward foreign exchange contracts to manage the foreign currency exposure related to certain monetary assets. The aggregate dollar equivalent of the notional amounts of the forward
contracts is $544 million at year-end 2005, and they expire throughout 2006.



Forward foreign exchange contracts to manage currency exchange rate volatility associated with certain investments in foreign operations. The contracts have a dollar notional
equivalent of $229 million at year-end 2005, and they expire throughout 2006.

Management of Marriott International, Inc. (the Company) is
responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal
control over financial reporting is a process designed by, or under the supervision of the Companys principal executive and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

The Companys internal control over financial reporting is supported by
written policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Companys transactions and dispositions of the Companys assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of the Companys management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that
could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Companys annual consolidated financial statements, management has undertaken an assessment of the
effectiveness of the Companys internal control over financial reporting as of December 30, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO Framework). Managements assessment included an evaluation of the design of the Companys internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of
December 30, 2005, the Companys internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles.

Ernst & Young LLP, the independent registered public accounting firm that audited the Companys consolidated financial statements included in this report, has issued an attestation report on managements assessment of
internal control over financial reporting, a copy of which appears on the next page of this annual report.

To the Board of Directors and Shareholders of Marriott International,
Inc.:

We have audited managements assessment, included
in the accompanying Managements Report on Internal Control Over Financial Reporting, that Marriott International, Inc. maintained effective internal control over financial reporting as of December 30, 2005, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Marriott International, Inc.s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that Marriott International, Inc. maintained effective internal control over financial reporting as of
December 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Marriott International, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 30, 2005, based on the COSO criteria.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Marriott International, Inc. as of December 30, 2005 and December 31, 2004, and the
related consolidated statements of income, cash flows, comprehensive income and shareholders equity for each of the three fiscal years in the period ended December 30, 2005, of Marriott International, Inc. and our report dated February
21, 2006 expressed an unqualified opinion thereon.

To the Board of Directors and Shareholders of Marriott International, Inc.:

We have audited the accompanying consolidated balance sheets of Marriott International, Inc. as of December 30, 2005 and December 31, 2004, and the related consolidated statements of income, cash flows,
comprehensive income and shareholders equity for each of the three fiscal years in the period ended December 30, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Marriott
International, Inc. as of December 30, 2005 and December 31, 2004, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 30, 2005, in conformity with U.S.
generally accepted accounting principles.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Marriott International, Inc.s internal control over financial reporting as of December 30, 2005, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2006, expressed an unqualified opinion thereon.